Moneycontrol Pro Panorama | Geopolitical shadow on markets grows longer

While these are all macro events, these have real effects at the micro level.

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The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. 

The job of a market strategist has never been tougher one may say, just as the job of a columnist has never been more interesting, perhaps. Last weekend, our knowledge of the Russia-Ukraine war was tested and found wanting, after the Wagner group’s leader Yevgeny Prigozhin turned mutinous, led a march to Moscow and before it could go further, the whole thing ended with a whimper. A deal was struck with the fighters returning to their bases and Prigozhin would leave for Belarus.

If you are wondering what these events mean, look no further than Manas Chakravarty’s aptly titled analysis, ‘Russia: A banana republic with nukes’. An excerpt: “Putin has brought Russia to the brink of disaster. The Wagner rebellion has exposed the chinks in his armour. It’s time for Russians to recall these lines from the famous German poet and dramatist Bertolt Brecht…” Do read to know what they are. Gideon writes in the FT (free to read for Pro subscribers) that things can't go back to normal in Russia after this.

Markets are obviously trying to interpret this latest twist in the long-running tale. Oil prices rose as the markets probably fear a supply disruption if there’s a regime change or even a wobble due to this development, said an FT report. Safe havens were in demand, with bond prices and gold rising. This will be a developing event.

While it has one eye on geopolitics, the market is also focused on monetary policy’s doings. And rightly so. Flash PMIs are showing clear evidence that tight monetary policy is applying the brakes on growth in developed economies.  And this is reflecting in weaker output prices in manufacturing, but the services sector’s pricing power appears to be resilient and even growing. Therefore, even a weakening of headline PMIs may not be enough to end the inflation vigil. As if on cue, the Bank for International Settlements has warned against complacency on this front and says that interest rates may need to stay higher for longer and that the next phase of disinflation will be more difficult. Read to know more.

All of this may seem global in nature. What about India? Here’s what Pankaj Pathak of Quantum AMC writes in today’s edition on monetary policy: “Bringing down the inflation from 7 percent to 5 percent was relatively easier as the impact of supply chain shocks and one-off price jumps tend to fade away with time. But, getting from 5 percent to 4 percent will require major change in pricing behaviour of economic participants. As the governor said, “It is always the last leg of the journey which is the toughest.” So, what should be the path forward for the monetary policy?” To know the path forward, read here.

While these are all macro events, these have real effects at the micro level. Take the plight of home loan borrowers who are paying more on mortgages. Today’s Chart of the Day shows how there’s a slowdown in the housing mortgage market, mainly due to rising cost of loans with the weighted cost of home loans rising by 175 basis points since May 2022 while that of all loans rose by 117 basis points. Despite being one of the safest corners of lending, the pass through in rates is significant. Read to know more.

The first name that comes to mind when one thinks of home loans is HDFC. Its merger with HDFC Bank is due to be completed shortly as it enters the final leg of the transaction. Neha Dave writes that the two main concerns investors have about the merger are on the sustainability of growth on a bigger balance sheet and the trajectory of profitability as regulatory costs rise post-merger. Read for an in-depth numbers-based look at these concerns. Also, investors seem sceptical about the merger when you look at valuations. Is that a valid viewpoint? Read to know.

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Technical Picks: Dr Reddy’s, Tata Motors, Jeera, IndusInd Bank and State Bank of India (These are published every trading day before markets open and can be read on the app).

Ravi AnanthanarayananMoneycontrol Pro