Dear Investors,
Equity market fell further in June after both US Federal Reserve and RBI hiked interest rates. Nifty fell by 5% and breached the 16,000 support level. FII selling accelerated in June due to rising US Treasury bond yields and INR depreciation. The broader market also continued to remain weak with some buying interest coming in at lower levels from domestic investors. We expect the market to remain volatile with downward bias, unless we see inflation stabilizing somewhat.
Q1 corporate earnings are expected to be released in July and though we may see jump YOY profits, the market will be more interested in management’s earnings guidance for the coming quarters. On the economic front, we are seeing a strong uptick in industrial activity after months of low growth with IIP registering 7.1% growth in April. With many stocks in Nifty 500 in bear market, there are attractive stock specific investment opportunities at lower levels over long term investment horizon. In this newsletter we have highlighted IT sector funds which can be attractive at current levels.
While the India Growth Story remains positive in the long term, the market will be taking cues from the US market in the near term. The US market is looking at scenarios whether the Fed will be able make a soft landing for the US economy at the end of the interest rate hike cycle or whether the economy will slide into a mild recession at the end of the interest rate cycle. The majority view is that the economy will slide into recession. The market will also look at different scenarios of recession, whether it is a mild or severe recession. The market is already discounting a future recession, but to what extent the severity of the recession is discounted in prices is unknown. We will continue to follow the market and update you.
As far as debt and money markets are concerned, bond yields firmed up further and we are seeing that the yield curve has started to flatten with the 91 day T-Bill yield up 15 bps. For conservative investors money market mutual funds can be good investment options for minimum 1 year investment tenures. 1 year G-Sec YTMs currently are over 6% and you can get some credit spreads on top of it. These funds can benefit in rising interest rate environment as they can re-invest their maturity proceeds in higher yielding instruments. Long term investors (minimum 3 year investment tenures) roll down target maturity funds can be good investment options as you can lock-in current yields for your investment tenures.
My team will be committed to working on identifying the best investment solutions for your specific needs, keeping current market conditions in mind.
Best Wishes,
Ajoy Agarwal,
(Managing Director)
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