Jamie Dimon, the chief executive officer at JP Morgan, a global bank, uses ‘inflation’ 15 times in his annual letter to shareholders. He argues that the US would need to raise interest rates and make a ‘massive’ shift to quantitative ‘tightening’ from quantitative ‘easing’. He is not just an analyst. He heads a bank with a balance sheet size of $3.7 trillion, bigger than India’s gross domestic product. Stock markets in America have not had a positive day since 4 April when he sent out the letter. Undoubtedly, there is nervousness across financial markets.
As far as equity markets are concerned, expectations of future profits of businesses are now probably heading back to more realistic levels. As interest rates rise to tame inflation globally, concerns are now starting to emanate about future profit growth.
While the world reels amidst the chaos of conflict due to the war in Ukraine and rising oil prices, India cannot escape the stress. India depends on imports to meet energy needs. Indian markets also rely on foreign capital flows that are witnessing a selloff. Thankfully, domestic institutional investors are buying into Indian equities and offsetting the impact of the relentless selling by foreigners.
However, make no mistake – inflation is real! It affects companies across sectors. The Reserve Bank of India’s monetary policy committee left key borrowing rates unchanged. It also kept the ‘accommodative’ monetary policy stance while agreeing to withdraw it to keep inflation in check if needed. Words like ‘inflation’ and ‘prices’ dominate the monetary policy statement. Rising inflation would push the Reserve Bank of India’s monetary policy committee to end the ‘accommodative’ credit policy stance sooner than later. India’s interest rates are likely to hold firm or even rise over the next couple of years.
Most stock market analysts have predicted steady growth in profits for frontline companies in most sectors. However, from automobiles to the consumer sector, all businesses are facing the heat of rising input costs.
In that backdrop, sectors that are not affected by consumer price inflation could focus on exports of services or those witnessing high demand. Themes that are likely to do well in the current environment include direct underlying plays on the underlying commodity price boom, Service oriented Industries and Investment related themes.
While we are on the subject, we urge you to check out some of our outperforming alphamatters such as the “Dividend Compounders”, “The Perfect PSU Alphamatter”, “Kisan Aur Kheti Alphamatter”, “India Unlock Alphamatter” and “India Capex Alphamatter”. Performances of these are displayed below. So go and check it out on www.alphaniti.com today!
|ALPHAMATTERS||ABSOLUTE RETURNS (%)|
|3 MONTHS||6 MONTHS||1 YEAR|
|Dividend Compounders alphamatter||10.098||3.587||38.832|
|The Perfect PSU alphamatter||15.353||10.323||35.574|
|Kisan Aur Kheti alphamatter||13.679||22.395||48.355|
|India Unlock Alphamatter||15.429||16.764||72.386|
|India Capex Alphamatter||6.475||11.847||–|
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