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Dear Reader,
Investors need to make up their mind. Not long ago, they were fretting at the economic effect of COVID-19 lockdowns in China, pursuant to the country’s zero-COVID policy. They said China must learn to live with COVID and stay open for business. After a groundswell of public opinion supported such a move, unusually for a Chinese government, the current dispensation gave in. Some may argue it should have prepared its health infrastructure for what happened next. But it seems to have decided to fight it out with what has already been created.
What did investors think was going to happen next? That COVID would cycle through the Chinese population without causing any illnesses or overwhelming the healthcare system? Anybody could have foretold the outcome, because the same script has played out in so many countries, including ours. Eventually, the situation will come under control but after active cases peak, which will take time. And, in any case, China’s decision to open up signals that it will keep the lights on, maybe curbing non-essential people movement but allowing factories and businesses to operate.
While China’s situation is unfolding, did the fall in markets these past few days have anything to do with China’s COVID spread? We don’t know, but there seems little logic to that fear right now. Even when cases were going up in the US and Europe earlier in the year, it did not lead to any appreciable spread in India. The government may have its reasons to be on alert and test international travellers, but let’s see what these test numbers say before jumping to conclusions.
Here’s some food for thought from an expert in this field Dr Gagandeep Kang on Moneycontrol, and if this topic is worrying you (whether as an investor or otherwise), then also read a tweet thread by her that analyses the situation comprehensively. In sum, there’s no harm in being cautious, but there’s no reason for alarm, at least not now. We have already been exposed to most of the variants floating around. If and when something new comes up in China, then we need to see where we stand.
If anything can be pinpointed to as a specific reason for the bearishness — a foolhardy task when it comes to markets — then it must be the hardening of stance by central banks. There’s nothing new here, but the raising of rates and tightening of liquidity conditions means equities are turning less attractive. Even in India, the stepping up of interest rates could see some financial savings move into bank deposits. Will it come at the cost of equity inflows in the longer run or not is another question. This week also saw Japan’s central bank stun markets by abandoning its commitment to easy monetary policy. That’s one more big voice lending support to tighter money this week and its move saw global markets wince in response.
This week also saw the minutes of the Reserve Bank of India’s Monetary Policy Committee’s (MPC) latest meeting being released. The RBI’s representatives on the MPC clearly have their knives out for inflation and are in the whatever-it-takes to hold it down mode. But external members are worried that staying on this path of fighting inflation could take a severe toll on growth. Markets may be concerned that while the hawkish stance will remain in place, the feared effect on growth will also show up, resulting in the worst of both worlds.
That may seem like too much sobering stuff in one day in this edition of the Weekender, and coming right after last week’s edition, where we had pointed to the gathering clouds. But stop looking at the one month chart of the Nifty or the Sensex and just stretch it all the way back to 5, 10, 15, or even 30 years. Suddenly, the picture brightens up, doesn’t it? These phases will come and go. If you have executed your asset allocation plan and have a well-diversified portfolio, you should be ok, in the long run. The Financial Times wrote this (free for Pro subscribers): Investing in 2023: Equities still offer value in tough times.
And, if you can’t take your eyes off the short term, then this is also the time when stocks turn a bit more attractive. If you have some dry powder or are seeking to reallocate, then our research team has come up with their 2023’s list of portfolio picks, comprising 19 names and has even assigned weights assigned to each of them. In their words: “While the outlook for 2023 is clouded, with forecasts ranging from extreme optimism to pessimism, we believe a well-researched portfolio can still produce gainers.” They also came out with nine high conviction themes that will make you money in 2023.
Enjoy your weekend and happy reading.
Cheers,
Ravi Ananthanarayanan
Here are some of the stories and insights we published this week, apart from our technical picks in the equity, forex and commodity markets:
Stocks
Kfin Tech, Persistent Systems, Elin Electronics, Speciality Restaurants, Sagar Cements, UTI AMC, UPL, Kajaria Ceramics and the Weekly Tactical Pick
Sector/Companies
Will India’s housing market be a global outlier in 2023?
IPO ‘gold rush’ in the EMS space — Investors need to tread with care
Accenture results signal more trouble for midcap IT stocks
How the energy crisis in Europe is affecting coal
Does steep fall in Paytm, Nykaa stocks alter their risk-reward ratios?
Why Narayana Murthy is wrong even when he is right
Are ITC’s shares catching a budget chill?
NHAI’s recapitalisation timely, but higher costs a challenge
Interview
Interview | Edtech’s crisis fuelled by money and hubris, but it’s not a dead end
Economy
Indian economy is in a sweet spot. This is why
Can the GST Council walk the FM talk?
Economic and social progress go hand in hand
Markets
Buckle up, interest rates are going to be higher for longer
SEBI’s opinion on net worth calculation for corporate governance norms has a cascading effect
In the war for deposits, no one is winning yet
Investing in fixed income has turned red-hot again
Extended trading hours for stock exchanges is an idea whose time has come
Year of the Rabbit: Recessions, deflation and earnings cuts
Foreign portfolio flows turn crucial for equities as MF inflows ease
Geopolitics
The Eastern Window | What is China’s strategy behind incursions?
India must step up Iran ties despite tough challenges
From the Financial Times
What this year in crypto has taught us
Mounting global price pressures threaten to trigger more rate rises
India overtakes China in M&A fees for western banks for first time
Lessons from the gilts crisis
Others
How to build an effective algo trading strategy
Startup Street | Why new businesses find it tough to grow up
