Market Notes 16.11.22
US Recession, India's out-performance, Predictions, What's looking good, Earnings Digest
Disclaimer
Nothing you read here, should be construed as investment advice. I do not know your circumstance and so please treat the below as nothing more than what my thoughts are, which are subject to change without notice. Please do your own work and consult your own financial advisor. You will very likely lose money if you use any information in this post without your own due-diligence.
Global Markets
In the previous note i had mentioned:
So now we are in a funny position where good news is bad news and bad news is good news. If the US goes into a recession or the Fed believes so then the rate hikes will stop and market will rally back up. But if the US economy remains strong the Fed will continue to tighten and markets will continue to fall.
US economy is likely on the brink of a mild recession and as is typical of the markets, when the actual recession officially arrives the market will start its upward journey. Never ever form your market opinions based on what you read in the news, except during extremes, when you’re betting on the opposite.
The US markets seem to be bottoming out with a milder than expected inflation data and the hopes that the Fed will slow down its pace of hikes. Any real bull market can only start when the Fed pivots from hawkish to dovish i.e. when they stop hiking and start cutting rates. This is possible once the recession is officially announced as the Fed’s mandate is to balance inflation and growth. Now with inflation slowing down, if there are indications that the growth is not coming through Fed has to change direction. This will likely take a few quarters but markets will react much before that. Part of that reaction has already started with the US markets coming off the lows and stabilizing.
The worst hit pack has been technology. The pain is now shifting from wall street to the main street. Both Facebook (META) and Amazon have announced massive layoffs. Such events typically happen at the bottom and i think it’s reasonably safe to say that the worst for tech is over. This doesn’t mean they will rally back to the highs anytime soon - but that a further large crash is unlikely. My best guess is that they will be range-bound and frustrate for next few quarters.
US markets have enjoyed a multi-year bull run and outperformance in the last cycle, so it’s fair to expect this cycle to be more subdued for them unless there is some game-changing event.
Indian Markets
As we have continuously noted in the last several posts India’s out-performance continues. I have been more bullish on this out-performance as there was a lot of skepticism and doubt at each point in this rally. Many investors have been on significant cash throughout and the rally to the all time highs just did not make any sense to anyone - in the backdrop of global turmoil.
This is exactly how bull markets work. They climb the proverbial wall of worry. Expect the markets to continue to surprise on the upside - unless there is the usual qualifier - a surprise event which changes the course of all markets.
I had noted several points for India’s outperformance in a previous post which was later sub-tweeted by many:
The most important points in my view were the first and the last i.e. FIIs having over-sold their positions and extremely robust corporate earnings. Both of these factors have significantly contributed to the current rally.
The USD-INR outperformance also continues. Our currency was unwilling to depreciate significantly even when there was a major crisis with the UK and Euro currencies, something i don’t remember happening anytime before, and has now again appreciated back from the highs of 83 to closer to 80-81.
All in all, the market forces are telling us that the market is headed higher. Make of it what you will.
Sectors in Play
We left off last time here:
Each of this points has played out.
IT numbers have been good and we have seen a relief rally.
Hotel/Eating Out etc have posted good numbers
Financials have been the best call - the numbers have been out of the park led precisely by the two factors mentioned above.
FMCG has been a mixed bag - Britannia has been a outlier with extremely good numbers.
Defence has been okay since the last post - the numbers have been satisfactory but nothing extra-ordinary.
Autos and capgoods have indeed seen breather with most stocks like M&M, Maruti, ABB, Scaheaffler off their highs.
Wit this, the Maine Bola Tha is over.
What’s looking good now?
Financials especially the tier 2 names seem to have more steam in them - names like Karnataka Bank, CUB, DCB Bank numbers have been good. In larger banks, SBI and Bank of Baroda numbers have been out of the park. Sustainability is key. The coming quarter will be crucial for any significant re-rating.
Auto - Ancillaries looks interesting with names like Fiem, Amararaja, Lumax, Craftsman doling out great numbers.
Select small cap pharma have posted good numbers but they are marginal names. The larger names like Divis have been struggling.
Cap goods numbers have been good led by names like Thermax, Elgi, Elecon and so on. After a subdued quarter they may show some strength.
All in all while this earnings season started very slow and subdued it turned out to be a good one. The next earnings season (with a lot of festive sales built in) is likely to be a cracker of a season, hopefully. The markets as usual will likely rally into the earnings expecting good numbers and then adjust post results.
An Earnings Digest
I am thinking of publishing an earnings digest which will list out explosive earnings and trends for a given quarter, as the earnings season is in progress. Let me know in your comments if it would interest and be of help.
Until the next post.
Disclaimer
Nothing you read here, should be construed as investment advice. I do not know your circumstance and so please treat the below as nothing more than what my thoughts are, which are subject to change without notice. Please do your own work and consult your own financial advisor. You will very likely lose money if you use any information in this post without your own due-diligence.
Waiting in anticipation for your earnings digest and act accordingly. Learnt a lot from you.
Regards
Yes earnings digest would be very exciting for me