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As the world watches the takeover of Afghanistan by the Taliban in astonishment, COVID-19 battered economies are steadily springing back to life. Japan’s economy, the third largest in the world, returned to growth in the June quarter. Business activity in India, as captured by the Nomura India Business Resumption index, exceeded pre-pandemic levels.
Our Economic Recovery Tracker too echoes these sentiments, though data indicate uneven progress. Preliminary reports show brisk retail sales during the Independence Day week. The data support investor sentiment and equities remain the preferred asset class for investors, reveals a survey of money managers by Moneycontrol.
Still, this optimism is already banked into the current valuations.
“We do not see incremental good news being good enough to drive a further re-rerating of the market as a lot of potential good news (economic and earnings recovery) is already priced into stiff valuations,” says Kotak Institutional Equities.
The challenge for India and the rest of the world is to maintain the positive momentum in business activity. That’s not easy. For instance, semiconductor shortage is hampering automobile production in India. Uneven monsoon rains can pose a challenge to the agriculture sector.
And then, there is the threat of inflation and a new COVID-19 wave. Economic recovery in China slowed last month on fresh COVID-19 outbreaks and floods. Israel, the first in the world to vaccinate its population, is now considering a lockdown (read more from the FT here – free for MC Pro subscribers). The US Federal Reserve is feared to be considering scaling back easy money policies. Minutes of the Federal Open Market Committee meeting will be released on Wednesday and could provide more cues.
“We expect domestic and global bond yields to rise gradually over the next several months as central banks exit their current ultra-loose monetary policies,” add the Kotak analysts. “The risk to this ‘perfect’ scenario is inflation staying ‘higher-for-longer’, which would force central banks to advance their ‘exit’ strategies and markets to adjust to faster ‘tapering’.”
Benchmark equity market indices were down 0.11 percent at 1:20 pm. Afghanistan continues to hog the limelight. India announced a new category of visa to fast-track applications of Afghans. What did all those years of American aid and occupation achieve? Check out our analysis of the economic trends here.
Also, check out MC30, our curated basket of 30 mutual fund schemes from the 1,660 available in the Indian market. This will help you build a solid mutual fund investments portfolio.
Investing insights from our research team:
Burger King India: Will this QSR player resume its fast growth trajectory?
AC companies: Long-term thesis fully intact after a dull Q1
Greater traction in housing: These are the stocks to benefit
Petronet LNG: Near-term headwinds, long-term winner
Cummins India: Higher valuation factors in strong earnings growth
What else are we reading today?
Lifestyle diseases worsened the COVID-19 crisis in India
M&M gets a shot at utility vehicle market share repair
GuruSpeak: Yashvardhan Sarda on how algos help trade the best fundamental and momentum stocks
Picks from our Technical Analysts: IRCTC, Bajaj Finance, M&M and Poonawalla Fincorp (These are published every trading day before markets open and can be read on the app)
R Sree Ram