Post two months of consolidation, the
Indian Equity Market (as measured by Nifty 50 Index) rallied by 8.1% during the
month of August, to close at all time high levels. Nifty 50 outperformed most
global indices by a wide margin. BSE Midcap and Small cap indices gained 3.3%
and 0.5% during the month indicating preference for large cap during the month.
Sectorally IT, Oil & Gas, Power outperformed while Auto, Metals &
Realty underperformed during the month.
Fed Chair, Jerome
Powell, in his speech at the Jackson Hole Symposium, highlighted that he and
most of the participants were of the view that “if the economy evolved broadly
as anticipated, it could be appropriate to start reducing the pace of asset
purchases this year”. The Fed see tapering not associated with rate
hikes. The Fed was also of the view that the test of “substantial
further progress” has been achieved regarding inflation and the labour market
is on track of a robust recovery with abundant labour demand and falling
In the Monetary policy in
August, The Monetary Policy Committee (MPC) maintained status quo on rates and
stance which is in line with market expectation. Repo rate unchanged at 4%.
Stance remains “accommodative”. All six members voted for keeping repo rate
unchanged. The “accommodative” stance to continue as long as necessary to
sustain growth on a durable basis and to mitigate the impact of COVID-19 on the
economy, while ensuring that inflation remains within the target going forward.
July Consumer Price
Index (CPI) inflation dipped to 5.6% versus 6.3% YoY in June. Food
inflation for July stood at 4.5%, 90bps lower than in June. Even adjusting for
falling base, food inflation eased. Importantly, some of the high-inflation
components (edible oils, pulses, etc.) have started to contract sequentially. Meanwhile, food inflation remained benign in vegetables and
cereals (deflating YoY), followed by milk and sugar (<2% YoY) with even
prepared meals and fruits inflation cooling off.
Core inflation on reported basis remained elevated at around
5.9% (over a base of 5.7% in July 2020). Higher input prices are weighing on
goods inflation (FMCG, textiles, etc.) which continue to move higher, while
persistent fuel price hikes is keeping energy and energy-related services’
inflation in double digits, despite high base.
of industrial Production (IIP) grew 13.6% YoY, but for Q1FY22 activity
contracted 3.4% (on a 2Y CAGR basis, much better than contraction seen during
the first lockdown. Restrictions were much less stringent in the second wave
and business seems to have adjusted to new norms and exports have held ground
much better than the first wave helped by buoyant global demand.
basis Nifty 50 index has rallied by 20%, in line with US markets, but ahead of
many emerging and developed markets. Strong increase in vaccinations and
broadly inline 1Q results have kept sentiments buoyant. Nifty 50 Index net
profit grew by 102% YoY broadly in line with street estimates. Street
projections are for over 30% growth in Nifty earnings for FY22 and 15-20%
growth in FY23E. Key concerns are around third wave of covid however increasing
vaccination coverage should help reduce the impact of 3rd wave. We
remain cautiously optimistic on markets.
Chief Investment Officer
Source: Mohfw.gov.in, RBI, Kotak Securities, Edelweiss Financial
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