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  Dear Reader, Foreign Portfolio Inflows Propel Indian Markets The Indian markets experienced a surge in foreign portfolio funds, propelling the Nifty to conquer Mount 19k and even target Mount 20k. Inflows into India Equity Funds reached their highest level since Q2 2015, while India Bond Funds also saw a record weekly inflow until July 12. De-Sinofication and Asian Stock Rush One major factor behind the inflows is de-Sinofication, as Western investors turn away from China and seek opportunities in other Asian markets. This shift in flows has been driven by disappointment over China's recovery, leading foreign investors to seek refuge in Asian stocks. US Dollar's Impact on Emerging Markets The weakening US dollar has been bullish for emerging markets, including India. Renowned strategist Stephen Jen predicts further USD depreciation, signaling potential growth for emerging markets. However, some experts caution that the current environment differs significantly fro...

  Dear Reader, Welcome to this week's edition. In our previous issue, we discussed how bond markets reacted to hawkish Fed minutes and a strong private jobs report, causing bond yields to rise. However, the sentiment shifted later in the week as the US non-farm payrolls report fell below expectations. This brought back smiles to investors' faces, and their optimism continued into this week. Global food inflation remained largely under control in June, as indicated by the decline in the FAO food price index. However, domestic food inflation saw an increase, with food prices rising by 2.5% on a month-on-month basis. Notably, pulses and vegetable prices experienced sharp increases. While the monsoon tracker highlighted an improvement in the uneven rainfall situation, the risk to agriculture still persists. In domestic inflation data, the positive aspect was a decline in core inflation. An analyst, pointed out that while this was good news for inflation-watchers, the US infla...

Welcome to our weekly newsletter, where we bring you the latest insights and trends from the world of finance. This week, our focus is on the upcoming quarterly earnings season, with particular emphasis on the banking sector. It appears that listed firms are poised to deliver another impressive set of numbers, although the pace of growth may vary across sectors. Amidst the noise and excitement, we have identified two key data points that can provide valuable insights for investors. Data Point 1:   Loan Interest Rates The share of loans with interest rates of 9 percent and above has risen to 56.1 percent as of January-March FY23, up from 39 percent in the previous quarter (FY22 Q4). This data point highlights the scope for bank earnings this season. Banks generate revenue by charging interest on loans they provide and paying interest on deposits they receive. The difference between the two is their earnings. While the potential for further lending rate increases is limited, as muc...

Dear readers, With the first half of the year behind us, it's time to reflect on the current state of the markets and anticipate what lies ahead. Benchmark indices across major markets have witnessed substantial gains since the beginning of the year. In India, the Nifty has been reaching new heights, capturing investors' attention. A closer look at the MSCI country indices provides valuable perspective. As of June 27th, 2023, the MSCI India index in dollar terms has risen by 2.7 percent year-to-date. Comparatively, Korea has surged by 16.2 percent, and Mexico by 26.6 percent. However, the performance of MSCI China leaves much to be desired. The question arises: Are the markets rallying due to high expectations for the remainder of the year?  Inflation is on a downward trajectory, and rate hikes have either occurred or are nearing their peaks. Systematix Institutional Equities notes that the markets are factoring in a "hyper goldilocks scenario," assuming that ...

Dear Readers, Welcome to our weekly newsletter, where we provide you with the latest insights and updates on economic developments. Let's dive into the highlights of the Reserve Bank of India's (RBI) monetary policy committee's June meeting and its implications for the economy. The minutes of the meeting revealed that the committee members acknowledged the positive progress in both growth and inflation. However, they emphasized that the RBI should not become complacent despite the cumulative 250 basis points policy rate hikes and should remain vigilant in ensuring price stability. While the past rate hikes are gradually impacting the economy, the central bank still needs to exercise caution and avoid any drastic shifts in policy. Economists have labeled the June policy as a "Goldilocks" one, indicating a favorable balance between inflation and growth. The outlook for growth is more optimistic than before, and inflation appears less daunting. However, the MPC...

  Dear Readers, In this week's newsletter, we delve into the escalating battle in India's domestic skies as IndiGo , the leading airline, secures a ground-breaking aircraft deal. IndiGo 's recent agreement with French aerospace giant Airbus for the purchase of 500 aircraft has set a new record in the aviation industry. Not only is this the largest-ever single aircraft order placed by any airline with Airbus , but it also signifies a defining moment in aviation history. Industry veterans and analysts emphasize that IndiGo 's deal is commercially significant, as it secures delivery slots for the next decade. Such a massive order empowers customers to negotiate commercially viable terms, including engine selection, aircraft type mix, and pricing. With this milestone order, IndiGo has soared above Tata-owned Air India , which had surprised the industry with its turnaround plans and a 470-aircraft order placed with Boeing and Airbus earlier this year. Post-pandem...

Dear Readers, Welcome to our weekly newsletter, where we bring you the latest insights and updates on global central bank actions, economic indicators, and market trends. This week, central bankers made interesting moves, ranging from skipping to hopping, leaving investors and markets curious about the future. Central banks have been engaged in lively debates about their strategies. Shaktikanta Das of the Reserve Bank of India (RBI) recently skipped for the second time, while Jerome Powell of the Federal Reserve may follow suit next week, although his actions have been unpredictable. In contrast, Bank of Canada Governor Tiff Macklem preferred to hop this week, implementing a small 25 basis point increase. Similarly, the Reserve Bank of Australia's Chief Philip Lowe surprised the markets by executing two small jumps of 25 basis points each, contrary to the expected skip. Meanwhile, the South African central bank's 50 basis point raise last month could be seen as a significan...

Dear Readers, Welcome to our weekly newsletter! We bring you the latest updates on India's manufacturing sector and its impact on the country's economic growth. In the latest report, the S&P Global Purchasing Managers' Index (PMI) for India's manufacturing revealed that the sector hit a 31-month high in May. Let's dive into the key highlights and insights from the report. 1. Robust Manufacturing Activity: The PMI for May stood at 58.7, surpassing expectations and marking a significant increase from April's reading of 57.2. This indicates a strong expansion in manufacturing, with factory orders experiencing the fastest growth since January 2021. The data showcases the resilience and optimism seen in India's gross domestic product (GDP) growth for the March quarter and fiscal year 2023. 2. Construction Sector Leads the Way: The Q4 GDP growth of 6.1% exceeded estimates and revealed the manufacturing sector's prominent role. Notably, constructi...

  Dear Readers, The term "immaculate disinflation" has gained significant attention lately, especially as global inflation rates start to come down. Economist Paul Krugman coined the term, which refers to disinflation without an increase in unemployment. However, disinflation has not been entirely painless for everyone, as some beleaguered regional banks in the US face a slow run on their deposits. In India, retail inflation for April was 4.7%, the lowest since October 2021, due mainly to the base effect. However, month-on-month retail inflation increased from 0.23% in March to 0.51% in April, indicating that price pressures continue, despite the year-on-year optics. Similarly, the CMIE Core index, which excludes food, fuel, light, and fuel for vehicles, fell from 6.2% in March to 5.9% in April, but went up month-on-month from 0.27% to 0.58%, indicating that companies still have pricing power. The Index of Industrial Production (IIP) numbers indicate that disinflation h...

  Iron ore prices have plummeted to $104 a tonne from their peak of $130 a tonne in March. This fall has brought iron ore prices to the level last seen in November 2022. The market did not anticipate this drop in iron ore prices, especially after the Chinese economy opened up completely, ending COVID-19 lockdowns and restrictions on mobility earlier this year. But the issue is not just about iron ore or steel; China's economy is growing in a lopsided manner. Its manufacturing sector is under pressure despite receiving a boost from the economy's reopening, with the April manufacturing PMI slipping to 49.2 compared to March's 51.9, indicating a contraction in activity. In contrast, the services PMI reading was still healthy at 56.4 but lower than the March figure of 57.8. Some experts speculate that China's economy is experiencing two types of recovery, one being a struggling manufacturing industry and the other being a robust domestic economy driven by consumer spendin...

  The recent amendment to the Budget, which taxes all income from debt mutual funds (MFs) as short term, has raised concerns among investors about whether equity is next in line to suffer a similar fate. Bloomberg reported last week that if the BJP government returns to power in 2024, it may consider a higher tax on equity capital gains, particularly on high-income earners. While the government has denied any such move, the idea has been sown in the public’s conscience. The unequal tax treatment in debt, where bank fixed deposits are taxed at the same rate as MF debt schemes, has been rectified. However, it raises the question of whether the same logic should apply to equity capital gains. After all, both equity and debt are sources of capital. If short-term capital gains on listed equity are taxed at 15 percent, should long-term gains be taxed at the same rate? While it remains to be seen how changes to tax rates will influence investment decisions, the government may consider...