Sunday, February 05, 2023

Welcome to The Weekly, where our team shares a few thoughts to take you into the week. This week’s thoughts have been brought to you by Sagar Lele, Founder of Rupeeting. He also manages the All-Weather portfolios.

Will India Underperform in 2023? 🇮🇳

Since the start of 2023, Indian equity markets have seen a decline of 2% - a terribly weak performance, compared to the rest of the world.

YTD, the Nasdaq 100 is up 12%, FTSE 100 6% and Nikkei 225 5%. Solid performance has also been seen in China, Hong Kong, South Korea, Taiwan, Singapore, Philippines, Thailand, Indonesia and Malaysia.

Major reasons for the global stock market resurgence?

• Easing of inflation is a major reason
• Subsequent hopes of a global monetary policy reversal in 2023
• China’s re-opening

Moreover, earlier expectations were set for a sharp global slowdown, which would continue ranking India high up in terms of relative growth. However, that plot seems to have changed as well.

• US - Seasonally adjusted annual GDP growth rate of 2.9% has been stronger than expected. The job market to continues to remain strong.
• Eurozone - GDP growth continued slowing down with sequential growth of 0.1% in 4Q 2022. However, hopes are that the EU will avoid a hard recession. Growth in the UK too was better than expected.
• Asia - China’s moves on easing COVID restrictions, supporting the property sector and going easy on the tech sector raised optimism in China, as well as the rest of Asia, which has major economic dependence on China.

A combination of resilient global economies amid easing inflation might lead to a narrowing of India’s growth premium. Add inexpensive valuations globally to the equation, and that might just stack risk-reward against India - a stage for the underperformance of Indian equities versus global equities.

<aside> 💡 Our View: We continue to remain sceptical about the Indian markets given potentially better plays for global investors, and supremely high valuations in India. We stick to a bottom-up approach, favouring companies with solid fundamentals, multi-year plays, and long runways on both growth and valuations.

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Idea - Ambuja Cement 🏗️

The Hindenburg report created quite the shakedown among the Adani group and others under their banner, namely Ambuja Cement, which has fallen by 23% since the release, despite not being mentioned in the report even once!