Slowdown? Not on the Indian Horizon At Least!

Inflation has been the single most dominant factor for the current weakness in the equity market globally, including India. We have seen inflation exceeding in many economies beyond the tolerance level of central banks for some time now. While inflation was not of concern a few months back, it is now baring its teeth. At times inflation tends to incentivise entrepreneurs but higher and uncontrolled inflation derails economic growth as fiscal and monetary policies get directed to tame inflation at growth’s cost.

However, I believe that inflation is set to turn its course from here on. Inflation in India has primarily been driven by a spike in food and fuel prices, which are likely to have peaked. A combination of weakening demand along with relaxation in supply constraints and base effect makes me believe that the worst of inflation is now behind us and its trajectory is likely to go down. Analysis shows that 12 per cent of all CPI inflation is imported as India is a net importer of commodities. This along with the falling rupee made the situation worse. 

Nevertheless, the Reserve Bank of India (RBI) has taken steps to stabilise the Indian rupee that is helping to contain imported inflation. Last few days of data shows that FIIs are returning to the Indian equity market, and this too will support the rupee and hence inflation. The single ‘e’ that never goes out of fashion in the stock market is ‘earnings’. With the earnings’ season going on, the market is busy discounting the Q1FY23 results. The earnings’ season this time is important to analyse the impact of rising raw material prices. However, it is the next earnings’ seasons that will show us the true picture about inflationary pressures and their impact on the earnings. 

In the cover story of the current issue we have discussed in detail the latest earnings’ trend while highlighting the hits and misses this season. The earnings’ season so far has been satisfactory with no major disappointment. Further, we have analysed the oil and gas sector and the opportunities it presents. Long-term investors have plenty of incentives to remain invested in this sector that is strategically very important for India. In our special story we have highlighted the outperformance of the automotive sector stocks. All of us have seen in the past that a beatendown sector can revive and deliver outstanding results in the coming years. A point in case is that of the automotive sector in India.

A couple of years back this sector was written off by investors and today the situation is such that the automotive index is trading at lifetime highs and is seen beating a majority of the sectoral indices, not to mention BSE Sensex. The Indian economy is quite resilient and can weather deteriorating global factors. A latest survey of economies by Bloomberg shows that India has zero probability of slipping into recession. All this supports what we have been recommending to our readers from the last few issues i.e. increase your exposure towards equity if already not done so. And continue to stay tuned to your most trusted research and wealth creating partner.

RAJESH V PADODE
Managing Director & Editor