Global geopolitical factors, similar to last month, remain negative with no resolution of the Russia Ukraine war. Oil prices continue to trade at a high price with Brent crude trading at around 114 $ per barrel. The Indian rupee has declined to around Rs 77.5/USD. Inflation numbers remain high and the central banks remain poised to increase interest rates further.
However, one positive development is the rebound during the last week of May 2022 of global equity markets. Since markets are forward-looking, it is possible that quite a few negative factors are already discounted in the current low prices, though one has to continue to be vigilant.
On the positive side, India in the financial year 2021-22 proved to be the fastest-growing large economy, in spite of a muted Q4. Moreover, the new fiscal year has started on a strong note with several high-frequency indicators holding firm despite multiple headwinds according to the data released on June 1.
GST collections remain strong by topping Rs 1.4 lakh crore for the third month running. The manufacturing purchasing managers’ index remained firmly in the growth zone at 54.6. Automakers have reported robust passenger car and commercial vehicle sales despite parts shortages and supply issues. Railways freight loading has risen by 15% while the country’s merchandise exports have risen by 21.1%.
Risks include elevated inflation, a sharp rise in interest rates, crude price rise, global growth slump, and another covid wave.
On balance, our medium-term view on Indian equities remains bullish and can be expressed through well-chosen high-quality diversified equity schemes. Additionally, the banking sector, given its valuations and the current economic cycle stage, is attractive. The infrastructure sector is also likely to perform well because of the government’s sustained push and spending. The technology sector in India continues to remain strong and is again attractive because of the recent correction.
We are recommending keeping intact equity positions for goals with a time horizon of more than 3 years. For debt schemes, we continue to recommend ultra short-term debt funds in the current scenario of rising and volatile interest rates.