Facing realities in Indian Market!

Hi connections!

Everyone is witnessing the volatility in the Global markets. India, of course being an outperformer but till what time?

Till what time can the Indian markets be so resilient? We have been saying that the Indian markets have decoupled from the global markets. If India has future plans to shut down and burn itself, we can call it as a decoupled market. But is that possible? Some instances might be there but in the the long-term, the markets will move together.

Everyone knows what globalization is. It is integrating one economy with other global economies. Can Globalization allow us to de-couple? Definitely not. We are dependent on other economies for export-import. Similarly, they are dependent on us. We can never de-couple. Though, the word deglobalization has been very popular after the Russia-Ukraine war. The correlation between the Indian & US stock market is 0.64, which is Farley high.

Let us talk more about the Indian markets. Over the past 20 years, when the oil prices soared, The Indian markets corrected, but this time they have been resilient.

We always talk about the China +1 strategy. Now, we must also talk about the Europe +1 strategy. The country is in almost recession because of power shortage. India can take the advantage in the same way as it took for China +1 strategy. India importing oil from Russia at very low prices & then selling to Europe at a margin can pave the way.

The gap between the bond & equity valuations have risen but the interest rate differential between India & USA is narrowing down. Probably, a sign of bear market.

Currently, we are in a triple whammy. We are witnessing high inflation, rising interest rates and oil prices still very high, hovering from $90-$100 per barrel.

Rupee is falling to all time low to USD, almost at 82. ?IT Companies can benefit because of the services they export, but currently they are crushed down due to excessive valuations and less foreign orders due to a fear of recession. Though, that can be compensated with the Indian startups leveraging with their services. Mid cap IT seems reasonable, but large cap is still over their pre-covid valuations.

Falling rupee is not always bad. It is what one can call as an expansionary current deficit, which will promote exports and substitute imports.

Indeed, we are so proud of our forex reserves. But have you heard about the forex reserves to GDP ratio. It has come down from 22% to 17% this quarter, not forgetting that the ratio was 15% in the 2008 financial crisis. Is it still good to say that we are in a better position as compared to previous recessions? Though each time the economy got hurt, we have bounced back faster.

India outperforming SGX, a hard/strong asset to trade in, still a matter open for debate.

Companies undergoing rapid expansion is great but at the cost of debt. Agreed, Indian corporates had significantly reduced their debt in the past years but re-leveraging again? Or was it not a beautiful de-leveraging earlier? Beautiful de-leveraging is nothing but, to increase cash at faster rate than to increase in debt. Corporations like Adani's raising huge debt from the State Bank of India. Hopefully things go well, but if not, a large conglomerate sinking can bring India down. Can we blame the Adani’s or others for creating monopolies or creating eco chambers after NDTV’s creeping acquisition.

By the way, Shree cement is out of Nifty 50 & Adani enterprises is in.?Give a thought about it?

India’s corporate debt/GDP is around 30% and we are very proud of it and calling it a de-coupled economy. But what about the global debt/GDP ratio which is more than 120%.

FIIs, popularly invest in India when the Dollar is down, but now it is peaking at its all-time high. The reason we are now witnessing outflows, but the reality is that at some point of time focus would again be shifted from inflation (Hawkish) to growth (Dovish), if the recession really comes into place. People call recession bad. I call it great. It is what that differentiates men from the boys. The fundamentally strong companies would correct a little but remain strong. Fundamentally weak companies will crash.

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Our metrics such as Inventory/sales is falling, credit growth is as high as 18%, price/income is less than 60%. Manufacturing is contributing 24% Gross-value-added on 1 unit of production rather than just 14% in 2011. Capacity utilization is more than 70%. These are good signals.

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Currently, the markets might be very volatile. But in the long term for over 6-months in future, India can continue outperforming if its fundamentals are justified and people continue to have faith in our economies.

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?I would leave with an ending note that it should be the domestic investors to take the market forward. We as Indians, must have faith in our markets and not just sell-off just because the foreign investors sell. Here, I am not denying the importance of the global investors. It is just, I mean we as Indians must trust our nation first & then rely on other’s actions.