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Moneycontrol Pro Weekender | The tide is going out

From monsoon to inflation to Fed stance and pace of vaccination, investors have a lot on their plate, go back to the drawing board to reassess their positions

June 19, 2021 / 10:07 AM IST
Representative image

Representative image

Dear Reader,

Finally, it’s here. The Southwest monsoon has enveloped Mumbai and is pouring buckets. The relief from the hot and humid summer heat is welcome, but it would be nice if the rains pace themselves over the next few months. If you are one of those investors who chase the monsoons to see what they could mean for the economy or your portfolio, we have kicked off the 2021 Monsoon Watch this week.

Another momentous event happened. For months now, the US Federal Reserve’s calm in the face of rising inflation and improving growth had puzzled many. The Fed had stuck to its narrative of inflation being transitory. It’s not just in the US that inflation is a worry. Back home too, rising wholesale and retail inflation are a source of concern for policymakers, but the RBI may have no choice but to keep supporting growth, we argued.

Even in this week’s statement, the Fed stuck to its stance of supporting the economy and maintained its belief that the rise in inflation is transitory. But where investors had expected an acknowledgement of inflation becoming a worry, it went much further.

Fed officials had earlier projected interest rates to remain at current levels till the end of 2023. That has changed now with the consensus pencilling in not one, but two rate increases in 2023. That’s a hawkish turn that markets had not anticipated. Still, a taper is not on the cards and any discussions on it are likely to take place for months before any action is taken. But even a mention may scare markets further.

Close

A new period of volatility lies ahead and the Fed’s actions will be guided by data, such as on inflation and growth. So, investors should also pay closer attention to it. What does this mean for Indian equities you may want to know, and we took a stab at that here. While the Fed chair’s dovish remarks allayed investor concerns for a day, as the import of what had just happened began to sink in, investors began reassessing their positions.

The dollar has strengthened and so have bond yields. Equities and commodities such as metals and agricultural products that had gained partly due to low interest rates and ample liquidity conditions are feeling the pressure. How much equities and commodity prices will correct is the main question. The answer is it all depends on what the data on inflation and growth say in the coming months. An all-weather advice is to assess your portfolio, the goals you had set and your asset allocation and if it’s not where it should be, then reallocate.

For a view on whether a correction in commodity prices can affect equities, read here. But for domestic equities, vaccination is the only option to prevent more COVID waves and support growth; our Herd Immunity Tracker showed that the pace is improving. The rupee may have depreciated against the dollar for now, but in the medium term we believe it could still strengthen.

While the macros may appear confusing, if you are a bottom-up investor, worry not. Here are some of the stocks our research team analysed this week. Suven Pharma’s technical prowess and healthy balance sheet made it this week’s tactical pick. We also wrote on consumption stocks that are set to do well such as Radico Khaitan, Jubilant FoodWorks and also Lemon Tree Hotels as lockdowns are being withdrawn. Financials also caught our attention as we discussed the value a potential buyer could assign to IDBI Bank and LIC Housing Finance’s earnings.

It was raining IPOs this week. We looked at Shyam Metallics and Energy and wondered if its relatively expensive valuations were justified. Then, there was automobile component maker Sona BLW Precision Forgings, which was also expensive but could be considered by investors  although they should not ignore the risks either. We also analysed the offers of KIMS and Dodla Dairy.

Elsewhere, we said that the RBI’s MFI regulations may be good on intent, but implementing them may not be easy. The RBI’s monthly report said the second wave may have caused Rs 2 trillion worth of losses (and defended its earlier quote fests). But these losses are not the only economic headache for the government. The spike in edible oil prices is becoming a cause for concern.

We pointed out that India’s power sector is finally seeing excess capacity correct, but that’s not enough to improve performance. We also wrote about how the government has responded to criticism on the incentive scheme for electric vehicles. Its second version does a much better job and now companies need to step up to the plate.

On investing, this week’s GuruSpeak saw PMS manager Rajesh Kothari explain his systems-led approach to spot winners. Also on investing, there’s a new kid on the passive investing block.

The times ahead may seem uncertain as an investor, and we get that. It was barely a year ago that the pandemic had made it seem like everything was lost, but then things looked up, and how! We have been by your side during those difficult times and will continue to bring insights — both on the macro, sectors and stocks — so that you can adjust to the changing scenario if required.

Your regular Pro Weekender columnist Manas Chakravarty will be back next week.

Cheers,

Ravi Ananthanarayanan

Moneycontrol Pro

 

 
Ravi Ananthanarayanan
first published: Jun 19, 2021 10:07 am

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