Moneycontrol Pro Panorama | Who's afraid of a recession?

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In today’s edition of Moneycontrol Pro Panorama: Weekly Tactical, SBI Life holds an edge, what Cognizant's guidance says, Strategy Lab and more

Dear Reader,

US gross domestic product declined for the second straight quarter, raising fears that the world’s largest economy may be entering recession. But investors brushed off these concerns and sent equity markets soaring higher. The NSE Nifty 50 index was up 1.11 percent at 1 p.m.

The 0.9 percent annualised reduction in the June quarter comes on the back of COVID stimulus-induced economic growth in 2021. As the rapid economic expansion stoked inflation, central banks are now trying to slow demand, even hazarding a recession in the process, as in the case of the US.

For investors, there are enough reasons to be hopeful that the current economic contraction in the US may not last long, not just because it is seen as a shallow recession or one being steered by monetary policy tightening, but also because conditions for economic activity reviving remain conducive. Demand is holding up. The labour market remains tight, indicating strong demand for skilled employees.

“Basic macroeconomic theory suggests that the present situation is predominantly because of the strong demand that has been buoyed by expansionary fiscal policies implemented during the pandemic,” writes Sashi Sivramkrishna, an economist, in today’s edition. Do read.

Moreover, earnings, the key driver of the equity markets, continue to hold out hope. An analysis of June quarter results released till now by ICICI Securities shows better than expected revenue growth. Even though profitability lagged due to cost pressures, the recent easing of commodity prices is expected to aid earnings in coming quarters.

“The sharp drop in commodity prices seen across the board in Q2FY23 so far could tilt the scale going ahead towards improving profitability for non-financial companies, if the robust demand pattern persists and input costs slump,” add analysts at ICICI Securities.

Indeed, expectations of easing cost pressures are building up in the services sector as well. Subir Roy argues the worst may be over for IT services companies in terms of employee attrition and retention costs.

In markets, SBI Life Insurance and Tata Steel are leading the gains in the Nifty 50 stocks. SBI Life impressed the Street by reporting strong performance for the June quarter. Normalised revenue, the annualised premium equivalent (APE), jumped 80 percent in the June quarter, vastly superior to peers HDFC Life Insurance and ICICI Prudential Life Insurance. And unlike private sector peers that struggled to grow the profitable retail protection business, SBI Life clocked impressive growth in the segment, reflecting benefits of the strong business franchise of its parent, State Bank of India.

“In terms of overall APE growth and retail protection APE growth, SBI Life has bucked the trend of slowdown seen at peers,” writes analysts at Emkay Research. The standout performance is being rewarded by investors, who sent the stock up 8 percent in Friday’s trading.

Investing insights from our research team
Weekly Tactical Pick: A cement maker whose fundamentals are rock solid

Nestle India: Double-digit growth across categories

Dr Reddy’s: China, India to lead EM opportunity

Jubilant FoodWorks: On a healthy, profitable growth path

Home First Finance - Consistent show to support valuation re-rating

Indian Energy Exchange: Growth prospects look dim in the near term
What else are we reading?

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Banking sector: What you see may not be what you get

Cognizant's guidance cut belies Indian IT’s optimism

WalMart's profit warning a sign of trouble for global retailers

Without India Inc’s help, we can’t fix our education system

Investors clutch at reasons to hope (republished from the FT)

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Population | What will happen to Indians who cannot afford air-conditioning?

Technical Picks: Deepak Nitrite, Castor seeds, NTPC, TCS and DLF (These are published every trading day before markets open and can be read on the app)

R Sree Ram
Moneycontrol Pro