Quotes from YES SECURITIES – Mr. Amar Ambani, Ms. Nitasha Shankar and Mr. Hitesh Jain
View on the stock market fall today morning
“The Sensex has fallen 1800 points, as Russia begins military operations in Ukraine. The geo-political event has been causing a rout across equity markets, as the world can ill-afford further disruption in trade and commodities when Covid has already weakened sovereign balance sheets. We had opined a few days ago that post the meteoric rise to 18,000 on the Nifty from lows of 7,500, it seemed like the Nifty could correct to 15,800 level. We were already witnessing the consolidation since mid-October 2021 due to lack of fresh triggers. The Russia-Ukraine issue added a negative trigger to the existing overhang of the US Fed likely raising rates in March 2022.
However, we reiterate our bullish stance on Indian equities for next three years. History has shown us that these wars offer good entry points for investors. Be it the wars of Vietnam, Gulf, Afghanistan, Iraq or the Crimean crisis, markets have fallen on war fear, then rallied when the actual battle broke out and further continued its upward journey post the war. The next 7-odd trading sessions will offer tremendous opportunity for the long-term investor. Invest in good quality management in sunrise sectors.”
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Russia has just launched an armed forces attack on Ukraine and this has sent waves across the world. In this context, please find below the views of Ms. Nitasha Shankar, Head PRS Equity Research, YES SECURITIES on Why Indians should not panic and go long on India.
Russia has launched an armed forces attack on Ukraine and the event has sent shockwaves across the world. Indian markets have not been immune to the same and have witnessed a massive selloff. This is a time when investors will be tested for their patience and discipline. Markets are choppy and will probably remain this way for some time, but that should not deter a serious investor. The underlying reason for remaining long on India (as an investment) remains strong.
Reasons why one should not panic and go long on India –
· Balance Sheets stronger-than-ever: India’s corporate health is the strongest in a long time – deleveraging has been seen across sectors and cash reserves have surged. As a result corporate confidence is high.
· Promoters are optimistic about the business potential: This reflects in the increasing promoter holding in NIFTY 500 over time, increasing from 32% to 45% over the last decade. Interestingly, post-Covid, promoters have increased stake by ~3%
· Private capex cycle is making a come back
· Public capex still strong with the Government giving an impetus even in the recent Union Budget. The budget has put in place a virtuous cycle that we expect would drive a multiyear growth cycle by focusing on (1) sustaining economic recovery through demand-side measures and (2) supply-side reforms with the objective of kick-starting the investment cycle and encouraging private sector participation 3) announcing benefits directed towards domestic production and manufacturing especially in emerging sectors like clean energy, etc. , which is critical for India’s medium-term growth prospects.
· China plus one strategy is helping drive demand in specific sectors
· PLI scheme is a big game changer that is encouraging and supporting domestic production
· Green energy transition for India is opening up a whole new investment opportunity for the investors
Moving in and out of investments based on undue reliance on recent performance is likely to result in excessive trading and inferior performance results. This is the time to revisit the basics, have confidence in the long term potential of India and remain invested in the same.
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Please find below the detailed views of Mr. Hitesh Jain, Lead Analyst, YES SECURITIES on the global oil demand and supply dynamics and influence of geopolitics.
With Oil driven inflation dominating market concerns, we statistically try to assess how Global Oil demand to Global GDP ratio has impacted Global Equities over the last six decades. Contrary to the common perception, we infer from the data that evolving Oil price trajectory does not have a material impact on Global Equities. The Global Oil demand/GDP ratio has ranged from the high of 7% during the Oil shock in the 1980s to the low of 1% in the late 1990s. In terms of recent history, the ratio has averaged 3% for the last 20 years and the current ratio is around 2.6 (2021 number). The vagaries of Oil markets have not significantly dented Global Equity Market Capitalization, barring the 1990 and 2008 GFC years.
Given the prevalent supply/demand dynamics, we present a scenario analysis basis the varied Oil price projection for 2022. If we assume Oil averages around US$60//bbl this year, the Global Oil demand/Global GDP ratio will remain well below the last twodecade average. If Oil averages US$80/bbl or US$100/bbl, the ratio will still stay benign. In case Oil averages US$120/bbl, the ratio can move above 4, though there have been several occasions in the past where the ratio as high as 6 has not eroded market capitalization.
Through 53 interesting exhibits, we focus on prevalent domestic and global liquidity flows to assess the evolving situation in financial markets. Shared below is our assessment.
India Equity
· 2022 has started off with the worst FII flows recorded in last four years
· Mid-cap names witness massive swings
· India Equities: From Euphoria to Doldrums in 4 Weeks and the pain persists
India Debt
· India G-Secs: Mutual Funds sell so far in Feb, quite a departure from the last 6- month trend, while Public Sector Banks consistently allotting new money, albeit a smaller amount
Global Liquidity
· Despite the Fed rate hike concerns, Passive money pours in Equities
· Value of global sub-zero yielding bonds nosedives,
· European stock valuations converge with long term average, while US remains distant away
· Outflows from US Inflation protected securities ETF suggest that concerns over inflation are easing
· IPOs in US have no takers, ETF sees the worst performance ever
Commodities
· Natural gas witness extreme volatility amid supply side concerns
· Backwardation in LME Nickel futures at 14 year high
Currency
· Yen’s overnight index swap indicates that the otherwise ultra-dovish BoJ will also tread on the path of policy normalisation
· Notwithstanding a hawkish Fed, several commodity and EM currencies have managed to hold ground
