Ruko Zara Sabar Karo
In this edition: Its actually a pause, rate hikes take a breather too, and moti vaato as always
Despite concerns about a potential interest rate hike in the US, a slowdown in China's growth, and India's increasing trade deficit, the Indian markets achieved a new record closing high for the week. This was driven by positive global and domestic data as well as strong investments from foreign institutional investors. The BSE Sensex climbed 1.21%, or 758.95 points, closing at 63,384.58, while the Nifty50 increased by 1.41%, or 262.6 points, concluding at 18,826.
During the week, the BSE large-cap index increased by 1.5%, the BSE mid-cap index rose by 3%, and the BSE small-cap index surged by almost 3%. Both global and domestic markets experienced a week filled with significant data releases. The consistent flow of positive macroeconomic data played a key role in maintaining positive sentiment among domestic equities. Particularly, the robust Consumer Price Index (CPI), Wholesale Price Index (WPI), and Index of Industrial Production (IIP) data contributed to investor optimism. Due primarily to a decrease in food inflation and a favorable base effect, the domestic CPI data showed moderation and moved closer to the Reserve Bank of India's (RBI) target. This development increased the likelihood of a rate cut before the year's end.
All sectoral indices concluded the week in positive territory. The BSE Realty index surged by nearly 4%, the Healthcare index added 3.6%, the BSE FMCG index rose by 3.3%, and the BSE Metal index increased by 3.2%.
The BSE small-cap index experienced a notable surge of almost 3% during the week. Foreign institutional investors (FIIs) purchased equities worth Rs 6,645.99 crore, while domestic institutional investors (DIIs) bought equities worth Rs 1,319.21 crore.
International Markets
On Friday, the S&P 500 closed in negative territory due to the negative impact of Microsoft and other influential companies. The market sentiment was dampened by comments from two Federal Reserve officials, which reduced optimism about the central bank's plans to conclude its aggressive interest rate hikes.
Although the Nasdaq also ended the week with a decline, both the Nasdaq and the S&P 500 remained close to their 14-month highs. This was attributed to economic data during the week indicating a slowdown in inflation, which overshadowed concerns about potential future rate hikes.
Following the Federal Reserve's decision to keep interest rates unchanged on Wednesday, they indicated the possibility of a rise in borrowing costs by up to 0.5% by the end of the year. However, traders anticipate the Fed pausing rate hikes or even implementing rate cuts in December, following an anticipated 0.25% rate hike in July, according to CME Group's Fedwatch tool.
U.S. stock markets will be closed on Monday for the Juneteenth holiday. S&P 500 fell 0.36% to end the session at 4,409.77 points. The Nasdaq declined 0.68% to 13,689.57 points, while the Dow Jones Industrial Average declined 0.31% to 34,301.03 points.
Volume on U.S. exchanges was heavy amid the simultaneous expiration of stock options, stock index futures and index options contracts. Nearly 17 billion shares were traded, compared to an average of 11 billion shares over the previous 20 sessions.
Of the 11 S&P 500 sector indexes, eight declined, led by communication services, down 1%, followed by a 0.83% loss in information technology. For the week, the S&P 500 rose 2.6%, the Dow added 1.2% and the Nasdaq gained 3.2%.
Fueled by recent strong gains in Nvidia and other megacaps, the Nasdaq logged its eighth consecutive week of gains, its longest streak of weekly advance since March 2019. The benchmark S&P 500's weekly gain was its fifth in a row.
Market Movers
1. China Economy Stalls: Major Banks Reduce Their GDP Predictions For 2023
After disappointing May data indicated a slowdown in China's post-Covid economic recovery, several major banks have reduced their GDP growth forecasts for China in 2023. Nomura, UBS, Standard Chartered, Bank of America (BoA), and JPMorgan have all adjusted their predictions, with Nomura cutting its forecast from 5.5% to 5.1%. The revised projections now estimate China's GDP growth for this year to range between 5.1% and 5.7%, down from the previous range of 5.5% to 6.3%. Industrial output and retail sales growth in May fell short of expectations, indicating the need for further policy measures to stabilize the economy after the pandemic. UBS economists anticipate additional policy support, while China's central bank has already reduced interest rates to facilitate lending. Standard Chartered and BofA also lowered their growth forecasts, with a focus on stimulating weak consumer and private sector demand. The banks have adjusted their predictions for China's 2024 growth as well.
2. India's CAD Likely To Widen To $10-12 Bn In Q1 FY2024
According to Icra, a rating agency, India's current account deficit (CAD) is projected to increase to USD 10 to 12 billion in the first quarter of the financial year 2024, compared to the expected USD 2 billion in the fourth quarter of FY2023.
Icra highlighted that in May 2023, the merchandise trade deficit reached a five-month high of USD 22.1 billion, widening from USD 15.1 billion in April. This increase was primarily driven by a higher growth rate in imports (+14.5%) compared to exports (+0.7%). However, the overall trade deficit remained similar to the previous year.
The average monthly trade deficit from April to May 2023 was USD 18.6 billion, lower than the previous year's average of USD 20.2 billion but higher than the monthly average of USD 16.9 billion in Q4 FY2023.
The widening of the merchandise trade deficit in May 2023 was largely due to the non-oil segment, which nearly doubled to USD 12.4 billion compared to USD 6.5 billion in April 2023. The oil segment had a relatively narrower widening to USD 9.7 billion in May 2023 compared to USD 8.1 billion in May 2022.
Icra also mentioned that non-oil exports may decline by three to four percent in FY2024, influenced by a slowdown in global growth and lower commodity prices. Additionally, it predicted a sharper contraction in merchandise exports of eight percent in FY2024, while imports may experience a four percent decline, indicating relatively stronger domestic demand.
3. India's Foreign Exchange Reserves Dip To $593.75 Bn
As per data released by the Reserve Bank of India (RBI), India's foreign exchange reserves declined to USD 593.75 billion as of 9 June, showing a decrease of USD 1.3 billion from the previous week. This follows a notable increase of USD 5.9 billion in the preceding week, indicating a reversal in the upward trend.
While the decrease in reserves suggests a slight weakening, it's important to note that the Indian rupee remained resilient during the week ending 9 June. The rupee experienced a marginal 0.2% decline but traded within a range of 82.4075 to 82.6800 against the US dollar. Ending the week at 81.93, the rupee recorded its best weekly gains in over three months, instilling confidence in the stability of the country's currency.
Various factors, such as global market dynamics, economic indicators, and policy decisions, can influence the fluctuations in foreign exchange reserves and the performance of the rupee. However, based on the available data, it is evident that the RBI's interventions in the currency markets have played a role in moderating significant movements in the rupee.
Research?
Smart Investing
Smart investing refers to the practice of making informed and strategic investment decisions to achieve long-term financial goals while managing risk effectively. It involves applying a disciplined approach and employing various strategies to maximize returns and minimize losses. Here are some key principles and strategies associated with smart investing:
Diversification: Smart investors understand the importance of diversifying their investment portfolios. By spreading investments across different asset classes, industries, and geographical regions, they reduce the risk of significant losses in case of a downturn in a particular sector or market.
Asset Allocation: Smart investors carefully allocate their investment capital among different asset classes, such as stocks, bonds, real estate, and commodities, based on their risk tolerance, financial goals, and market conditions. Asset allocation helps balance risk and return potential.
Research and Analysis: Smart investors conduct thorough research and analysis before making investment decisions. They examine financial statements, analyze industry trends, evaluate the management team, assess competitive positioning, and consider relevant economic factors. They make informed choices based on fundamental analysis and avoid making impulsive decisions based on speculation or market hype.
Long-Term Perspective: Smart investing emphasizes a long-term perspective. Instead of trying to time the market or chase short-term gains, smart investors focus on the fundamentals of their investments and aim to benefit from compounding returns over time. They understand that market fluctuations are normal and maintain a patient approach.
Risk Management: Smart investors assess and manage risk effectively. They understand their risk tolerance and align their investments accordingly. They may employ risk management tools such as stop-loss orders, hedging strategies, and setting appropriate asset allocation targets to protect their portfolios from excessive losses.
Regular Monitoring and Rebalancing: Smart investors actively monitor their investments and regularly review their portfolio to ensure it remains aligned with their investment objectives. They rebalance their portfolio periodically to maintain the desired asset allocation. This involves selling overperforming assets and buying underperforming assets to restore the desired balance.
Continuous Learning: Smart investors are committed to continuous learning and staying updated with the latest market trends, investment strategies, and financial knowledge. They read books, follow reputable financial publications, attend seminars, and seek advice from trusted sources to enhance their investment skills.
Emotion Control: Smart investors recognize the role emotions can play in investment decisions and strive to control them. They avoid making impulsive decisions driven by fear or greed. By maintaining a rational and disciplined approach, they are better equipped to make objective decisions based on facts and analysis.
Tax Efficiency: Smart investors consider tax implications and strive to optimize their investment returns by utilizing tax-efficient strategies. They may use tax-advantaged accounts, such as individual retirement accounts (IRAs) or 401(k)s, and strategically manage capital gains and losses to minimize their tax liability.
Seek Professional Advice if Needed: While many investors manage their portfolios independently, smart investors understand when to seek professional advice. They may consult financial advisors or investment professionals for specialized guidance, especially when dealing with complex investment instruments or specific financial situations.
Smart investing is a dynamic and evolving process that requires knowledge, discipline, and continuous evaluation. It aims to generate consistent long-term returns while mitigating risks and achieving financial goals.
What is a smart investor?
The qualities of a smart investor can vary, but here are some key qualities that are often associated with successful investors:
Financial Literacy: Smart investors have a solid understanding of financial concepts, investment instruments, and the workings of the financial markets. They continuously educate themselves about investment strategies, risk management, and market trends.
Research Skills: They possess strong research skills and diligently gather information about potential investments. They analyze financial statements, evaluate industry trends, study market conditions, and stay informed about economic indicators.
Patience and Discipline: Smart investors understand that successful investing requires patience and discipline. They don't get swayed by short-term market fluctuations and are willing to hold onto their investments for the long term, allowing them to benefit from compounding returns.
Risk Management: They are adept at assessing and managing risk. Smart investors diversify their portfolios across different asset classes and sectors to mitigate risk. They also have a clear understanding of their risk tolerance and invest accordingly.
Long-Term Focus: Smart investors have a long-term perspective and don't let short-term market volatility distract them. They focus on the fundamentals of their investments and look for sustainable growth over time.
Rational Decision-Making: They make rational investment decisions based on research, analysis, and a well-defined investment strategy. They avoid emotional decision-making and don't let fear or greed drive their actions.
Flexibility and Adaptability: Smart investors are flexible and adaptable. They adjust their investment strategies as market conditions change and are open to exploring new opportunities. They learn from their mistakes and are willing to modify their approach based on feedback and new information.
Goal-Oriented: Successful investors have clear investment goals and develop a plan to achieve them. They regularly review their progress, make adjustments if necessary, and stay focused on their long-term objectives.
Continuous Learning: Smart investors have a thirst for knowledge and are constantly learning and evolving. They stay updated with industry trends, read books, attend seminars, and network with other investors to expand their knowledge base.
Emotional Intelligence: Finally, smart investors possess emotional intelligence. They understand their own emotions and biases, and they are able to manage them effectively. They don't let fear or overconfidence cloud their judgment and are capable of making rational decisions even during volatile market conditions.
It's important to note that while these qualities can contribute to successful investing, investing always carries risks, and past performance is not indicative of future results.
Sidenote: Smart investing is as mythical as immediate returns, what smart investing in its truest sense is, is something which will be tuned to you and your needs as an investor, any research is flawed without it working in your favour.
Motabhai ni Moti Vaato
Many individuals, having time and resources during the pandemic, turned to the equity market and benefited from the digitization and awareness efforts, such as the Mutual Fund Sahi Hai program by the mutual fund industry.
India is set to be the world's youngest country for the next 50 years, with a significant influx of youth power. Surprisingly, India's per capita GDP has increased during the COVID-19 period, distinguishing it from other nations. The middle class and upper middle class, in particular, have seen an improvement in their financial situations. Due to limited opportunities for discretionary spending, they have redirected their funds towards savings.
Overall, the awareness of equity markets, the penetration of digital platforms, and the emphasis on savings have contributed to India's resilience and the financial well-being of its population.
India's resilience can be attributed to its historical experience as an agrarian economy, prone to cyclones, floods, and droughts. This has ingrained a sense of resilience in the population. Additionally, India's demographic advantage plays a crucial role. Looking at China's example, where manufacturing significantly contributed to its GDP growth, India has a well-defined template to follow. With its abundant labor force and manufacturing capabilities, India has the potential to become a global manufacturing hub. Moreover, India already holds a significant market share in services, further strengthening its position. The combination of manufacturing and services, along with India's population strength, positions the country to capture a substantial share of global growth.
As the world emerges from the COVID-19-induced slowdown and recession, India's growth prospects become even more exciting. Despite existing global challenges, India has already demonstrated a commendable growth rate. However, when the world regains its growth momentum, India will be ideally positioned to benefit. In a fast-growing global landscape, India has the potential to become the fastest-growing market, offering immense opportunities for economic expansion.
In the past 14 years, India's economy has been primarily driven by the service sector. However, in the next 14 years, there is an expectation that manufacturing will take the lead, leading to a shift away from services and agriculture. This transition indicates a diminishing role for agriculture in the economy.
There are three key themes that companies can leverage for future success. Firstly, the renewable energy sector presents significant opportunities, with India being a rapidly growing leader in green energy. Companies that capitalize on this trend, particularly in converting oil and carbon requirements into hydrogen and solar energy, are likely to emerge as leaders and experience substantial growth.
Secondly, the rapid digitalization and internet penetration in India offer new frontiers for companies. Those at the forefront of this digital revolution have the potential to benefit greatly and achieve significant success.
Lastly, within the manufacturing sector, artificial intelligence (AI) is revolutionizing the way goods are produced. Technologies such as 3D printing and advancements in AI present opportunities for companies to excel. India's IT leadership can play a significant role in becoming leaders in the AI space, further enhancing the country's manufacturing capabilities.
Overall, companies that seize the potential of renewable energy, leverage digitalization, and embrace AI in manufacturing are expected to emerge as leaders and experience substantial growth in the coming years.
Word Wise
Current Account Deficit (CAD)
The current account deficit is an economic indicator that measures a country's trade imbalance, where the value of its imports of goods and services exceeds the value of its exports. It encompasses various components, including net income from investments and transfers like foreign aid, although these make up a relatively small portion of the overall current account. The current account reflects a country's international transactions and is part of the balance of payments, along with the capital account.
A country can reduce its existing debt by increasing the value of its exports compared to imports. This can be achieved through measures like import restrictions, promoting exports, or improving domestic companies' competitiveness. Monetary policy, such as currency devaluation, can also help by reducing export costs.
While a current account deficit may suggest that a country is spending more than its means, it is not necessarily a disadvantage. If the country uses external debt to finance investments with higher returns than the debt's interest rate, it can remain financially stable despite the deficit. However, if a country is unlikely to generate sufficient future revenue to cover its current debt levels, it may face insolvency.
A current account deficit indicates negative net sales abroad. Developed countries like the United States often run deficits, while emerging economies tend to have current account surpluses. Impoverished countries often have current account debts.
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Motabhai.