december 2021 investment products

PowerPoint PresentationIndex
Equity Outlook ……………………………………………………………………. 2-5
Deep dive – Global Investment: Are there any clear trends?….……………… 10-14
Studying Inflation patterns, drivers and controls…………………………….. 15-17
Dots to Join……….……………………………………………………………….. 18-19
01
Dear Investors,
This is the first time that inflation, the number one predictor of a market downturn since 1925, is
being ignored.
-Jeremy Grantham, GMO, Long-term Investment Strategist, Co-founder
The big theme in the early part of November 2021 was US inflation. US CPI rose by an annualized
6.2% during Oct 2021, the highest in more than three decades. In this month's Macroscope, we have
a special section discussing the patterns and drivers of US inflation over several decades. The article
examines previous periods of heightened inflation and sees how it relates to current inflation trends.
It also details the monetary policy framework adopted by central banks in managing inflation along
with growth and employment dynamics.
Indian investors’ interest in investing globally has been gaining traction in the last two years. The
numbers speak for themselves. The total AuMs of Mutual Funds/ ETFs investing in global markets
has grown from Rs. 3,235 cr in 2019 to around Rs. 34,620 cr now. Global investing adds
geographical diversification to an investor’s portfolio as well as provides USD exposure. This month’s
Deep Dive section analyzes historical data and performance of major global markets to see if any
useful investing lessons stand out. What should be the investment horizon? How long can a country
continue to outperform? What could be the upper/lower bounds of such outperformance? Does
contrarian investing work or should investors chase momentum instead? We look at the data from
multiple angles to draw our insights.
Our monthly equity and debt market outlook sections review a wide range of topics from macro
developments, corporate results, sectoral developments to bond market movements. In addition, the
Macroscope contains the regular “Dots to Join” and Crossword sections.
The last week of November saw the emergence of Omicron variant of the Corona virus. WHO has
classified it as a “variant of concern”. The WHO has further warned that the Omicron variant poses a
“very high” risk of infection and there could be future surges of Covid-19 with potentially severe
consequences. Its impact on markets is of secondary concern. The primary personal concern should
now be on taking effective preventive measures against Covid-19. Please follow Covid-19 protocols
relating to wearing a mask, sanitizing your hands, maintaining social distancing and getting
vaccinated as soon as possible.
Wishing you and your family good health.
Wishing you successful investing.
MARKET MACROSCOPE | INVESTMENT PRODUCTS | DECEMBER 2021
Equity Outlook
Macroeconomic Review:
Domestic review:
India’s GDP grew by 8.4% in Q2FY22 largely in line with analyst expectations. India’s manufacturing
PMI hit a 10-month high of 57.6 in Nov 2021 compared to 55.9 in Oct 2021. India’s services PMI had
hit a decade high of 58.4 in Oct 2021 compared to 55.2 in Sept 2021. The Nov services PMI came in
at 58.1, indicating that the Indian service sector continued to strengthen. GST collections in
November were Rs. 1.3 lac cr, sustaining the momentum of the past few months. The Confederation
of All India Traders (CAIT), which represents about 7 crore traders, said that Diwali festive sale
crossed Rs. 1.25 lac cr mark, a record figure in the last decade. Market commentary from real estate
developers points to sustained demand momentum in the residential real estate sector. Anecdotal
evidence suggests that the hospitality sector is seeing strong demand for the Christmas/New Year
holiday season. The only dampener in the otherwise all round strong sentiment was auto sales which
disappointed during the Diwali season.
India’s CPI inflation rate rose marginally to 4.48% in Oct 2021, compared to 4.35% in Sept 2021.
However, the inflation rate remains well within RBI’s stated target band of 4% + or - 2%.
Global Review:
US ISM manufacturing index rose to 61.1 in Nov compared to 60.8 in Oct 2021 pointing to strong
manufacturing activity in the US. Private nonfarm payroll growth of 604k in Oct was much higher
than the 365k reported in September. The US economy appears to be sustaining its growth
momentum. China remains one of the regions with weak growth. China’s manufacturing PMI was
50.1 in Nov compared to 49.2 in Oct 2021. The growth was a little better than expected but far lower
than other regions globally. Press reports suggest that advisors to China’s government would
suggest a GDP growth target of 5.0-5.5% for 2022 compared to the 6% growth target for 2021.
US headline CPI inflation was 6.2% yoy in Oct, the biggest inflation surge in more than 30 years.
Euro area inflation was 4.9% in Nov compared to 4.1% in Oct 2021. In our past write ups we have
urged investors to keep a close eye on US inflation as a key risk factor. Concerns around high
inflation were the initial trigger for the market correction in Nov 2021. The hypothesis that inflation
was transitory, driven by supply disruptions seems to be losing followers. US Federal Reserve
Chairman Jerome Powell said that the Federal Reserve will discuss in Dec 2021 whether the bond
purchase program should end a few months earlier than had been anticipated. These comments
were markedly more hawkish than his comments in the past. It’s noteworthy that these comments
came even as global equity markets were witnessing a sharp fall because of concerns around
Omicron.
In the last week of Nov 2021, news around Omicron variant of the Corona virus triggered a sharp fall
in the equity markets. Omicron is a heavily mutated variant of the Corona virus compared to earlier
variants like Delta. At the moment very little is known about the transmissibility, severity of infection
caused by Omicron virus but market concerns are that the variant might be more transmissible
compared to earlier variants and potentially overwhelm medical facilities in several countries. The
other major concern is that existing Covid vaccines might not be effective against the Omicron
variant because of the large number of mutations. Executives at Pfizer & Moderna have expressed
confidence that they will be able to design new vaccines against the variant by early 2022. At the
moment of this writing, Omicron cases had been detected in more than 25 countries including India
and the US. News flow around the variant will contribute to equity market volatility in the coming
months.
Indian equity markets corrected sharply during November impacted by twin concerns relating to US
inflation and spread of the Omicron virus. The Nifty 50, S&P BSE Midcap and S&P BSE Smallcap
indices returned (-3.9%), (-2.3%) and (-0.2%) respectively in Nov 2021.
Equity Outlook
03
Cyclical sectors were the worst performing sectors in Nov with the Nifty Bank, Nifty Metal and Nifty
Auto indices returning (-8.7%), (-6.5%) and (-6.1%) respectively. Defensive sectors like S&P BSE
Telecom, S&P BSE Power, Nifty IT and Nifty FMCG were the best performing indices during the
month returning 6.7%, 3.6%, 1.8% and (-2.2%) respectively. The telecom sector was boosted by the
tariff hikes announced by the 3 major players.
The best and worst performing stocks during Nov 2021 from the NSE 500 universe are shown in the
table below. Stocks from defensive stocks such as hospitals, technology and utilities were among the
best performing sectors. Deleveraging through a QIP issuance and the strong momentum in
residential real estate sales helped Macrotech to be one of the biggest gainers in the midcap space.
Adani group stocks were among the top gainers. Leveraged financials were among the worst
performing sectors as they would be among the sectors hit hardest by any disruptions as a result of
Omicron. The sharp steel price correction in China coupled with the weak construction data from
China impacted steel stocks which were among the largest losers.
Flows:
FPIs were net sellers of Indian equities in cash to the tune of Rs. 5,945 cr in the month of Nov 2021.
However, this net sales figure understates the actual selling in the secondary market as the gross
secondary market sales were offset by by the large subscription by FIIs to the mega IPOs
(particularly PayTM’s Rs 18,000 cr IPO). DIIs were net buyers to the tune of Rs. 30,560 cr. This was
the largest net purchase figure for DIIs during CY21. (Source: NSDL, Moneycontrol.com).
IPO Review:
Nov 2021 was a big month for IPOs with 10 companies raising an aggregate Rs. 31,971 cr. The most
watched IPOs of the month were the mega Tech IPOs with Nykaa, Policy Bazaar and PayTM listing.
PayTM grabbed the lion’s share of the news with its very weak listing closing down 27.5% on the
listing day from its issue price.
However, there were 4 IPOs viz. Nykaa, Sigachi, Latent View and Go Fashions, which gave very
attractive returns in the month. December 2021 is likely to be another very strong month for IPOs
with 10 companies expected to raise Rs. 10,000 cr in aggregate from IPOs.
Best Performing Stocks Among NSE 500 in November 2021
Large Cap Mid Cap Small Cap
Stock Name Returns Stock Name Returns Stock Name Returns
Apollo Hospitals
Tata Teleservices
(Maharashtra) Ltd. 112.9%
Adani Enterprises Ltd. 16.7% Thermax Ltd. 27.2% KPIT Technologies Ltd. 60.1%
Adani Total Gas Ltd. 13.3% Rajesh Exports Ltd. 20.3% Elgi Equipments Ltd. 38.6%
Adani Green Energy Ltd. 12.6% Escorts Ltd. 17.5% Trident Ltd. 37.0%
Power Grid Corporation of
India Ltd. 11.8% Minda Industries Ltd. 17.1% Sheela Foam Ltd. 31.6%
Worst Performing Stocks NSE 500 in November 2021
Large Cap Mid Cap Small Cap
Stock Name Returns Stock Name Returns Stock Name Returns
IndusInd Bank Ltd. -22.5% Manappuram Finance Ltd. -21.4% Ujjivan Financial Services
Ltd. -25.4%
Tata Steel Ltd. -18.6% Jindal Steel & Power Ltd. -17.7% Graphite India Ltd. -23.7%
Steel Authority of India
Bajaj Auto Ltd. -12.6% JSW Energy Ltd. -16.6% Spandana Sphoorty
Financial Ltd. -22.5%
GAIL (India) Ltd. -12.5% Ashok Leyland Ltd. -15.9% Bajaj Consumer Care Ltd. -21.1%
Source: NSE
Equity Outlook
04
The table below summarizes the IPOs which either closed or listed during Nov 2021:
Outlook:
Varun Lohchab, Head of Equity Research at HDFC Securities’ Institutional Equities (HSIE) team,
published his quarterly flipbook on Nov 23 2021. This detailed compendium of results is a ready
reckoner for all the quarterly results covered by our IE team. This is a must read report for all
investors interested in researching their investments. We present below a few excerpts from the
report.
• Aggregate revenues/ PAT increased by 31.7%/ 22.2% yoy across the 188 companies covered by
our IE team. However, on a 2-year CAGR basis, the growth was a more modest 8.8%/17.1%
• Consumer discretionary, insurance & capital markets, energy, real estate and large banks showed
strong growth in profits while autos & consumer staples disappointed. IT continued its strong
momentum
• FY22/FY23 earnings for HSIE coverage growth stands at 18.1%/27.0%, leading to doubling of
earnings over FY20-23, post 34% YoY earnings growth in FY21
• Nifty consensus FY22 EPS remains largely unchanged. Nifty is trading at ~23.9x FY22 EPS and
at ~20.3xFY23 EPS
• Varun’s preferred sectors continue to be large cap IT and banks, gas, insurance and capital
markets, while we remain underweight on consumption (staples, discretionary and autos), NBFCs,
and small banks
• Residential real estate sales have been strong and housing and home improvement was a key
theme
Recommended reading for the month:
This month’s recommended reading is an article published on Reuters.com on Nov 22, 2021 titled “Princes to
Paupers”. (read the article here). The article discusses the partnership of Reliance JioMart with the mom and pop
kirana stores and its impact on traditional distributors of FMCG products. The partnership is resulting in significant
changes to the sourcing patterns of kirana shops but it has deeper implications not just for the distributors but also
for the FMCG companies and organized grocery retailers. Reliance targets to onboard 10 million merchant partners
by 2024 from the current 0.3 million.
Name of the company Size of IPO
(Rs. Cr)
FSN E-Commerce Ventures 1,125 01-Nov-21 1125 2001 77.90% 81.8 91.2
Fino Payments Bank Limited 1200 02-Nov-21 577 548 -5.00% 2 1.7
Sigachi Industries Limited 125 03-Nov-21 163 575 252.80% 101.9 86.5
PB Fintech Limited 5710 03-Nov-21 980 1150 17.30% 16.6 24.9
S.J.S. Enterprises Limited 800 03-Nov-21 542 540 -0.40% 1.6 1.4
One 97 Communications 18300 10-Nov-21 2150 1955 -9.10% 1.9 2.8
Sapphire Foods India 2,073 11-Nov-21 1180 1311 11.10% 6.6 7.5
Latent View Analytics 600 12-Nov-21 197 530 169.00% 326.5 145.5
Tarsons Products Limited 1,024 17-Nov-21 662 700 5.70% 77.5 115.8
Go Fashion (India) Limited 1014 22-Nov-21 690 1316 90.70% 135.5 100.7
Source: NSE
Equity Outlook
05
The detailed report lists out changes to earnings estimates for the coverage universe, changes to the
HSIE model portfolio, ratings and target prices for the coverage universe and a review of the
corporate results of the companies under coverage.
The table below shows select “buy” and “reduce”/“sell” rated stocks as rated by HDFC Securities’
Institutional Equities (HSL IE) team. The full list of stocks rated and their target prices can be
accessed at our website.
HDFC Securities’ Retail Research team regularly comes out with short term trading calls in a
publication called “The Daily”. The current outstanding open e-margin calls are summarized below:
All of the above institutional equities reports and retail research calls can be accessed on our
website.
Risks:
Omicron has jumped to the top of the near term risks. The extent and period of disruption as a result
of the new variant is difficult to price at the moment because of lack of information about the variant.
We expect the variant to be a source of volatility as greater details emerge about the variant. In case
the variant causes substantial disruption through lockdowns etc., equity markets could see a near
term sell off. However, we do not expect a repeat of the March 2020 panic selling because the
consumer, the companies and the governments better understand Covid-19 and ways to deal with
the same.
Inflation is the second risk the markets will have to deal with. Any disruption in supply chains
because of Omicron may further exacerbate inflationary pressures. The US Federal Reserve
Chairman is already sounding more hawkish as discussed earlier in the note. The inflation trajectory
will have to be watched closely. Markets appear to have priced in tapering of bond purchases. The
markets would be looking at the prospects for rate hikes going forward.
China’s economic activity slowdown will be the third risk to monitor. It may have a large impact on
certain commodity markets and companies.
HDFC Sec Institutional Equities: Select "Buy" rated stocks
Name Target price CMP % Upside
Axis Bank 928 677 37.0%
Crompton Consumer 575 438 31.2%
Cyient 1,250 1,007 24.1%
HDFC Sec Institutional Equities: Select “Sell/Reduce" rated stocks
Name Target price CMP % Downside
Avenue Supermart 2,700 4,801 -43.8%
Jubilant Foodworks 3,300 3,802 -13.2%
New India Assurance 121 145 -16.7%
Shoppers Stop 210 332 -36.8%
Source: HSL IE
share)
share)
Upside %
La Opala 25-May-21 326 336.1 400.0 19% Source: HSL Retail Research
06
India’s 10yr G-sec yield remained range-bound in Nov 2021
During the month of Nov 2021, the 10yr G-sec yield remained range-bound within 10 bps between
6.29-6.39%. On a MoM basis, the 10yr G-sec yield fell by 6 bps from 6.39% as of Oct 29, 2021 to
6.33% as of Nov 30, 2021. In the absence of any major domestic cues during the month of November,
India’s bond yields largely tracked global events including volatility in global bond yields and crude oil
prices and potential severity of the Omicron variant towards month end.
India’s 10yr G-sec yield movement in last 3 months
Source: Financial Benchmarks India Private Limited (FBIL)
India’s real GDP grew by 8.4% YoY in Q2 FY22 and exceeded the pre-pandemic levels of Q2 FY20 by
0.33%. On a sequential (QoQ) basis, the growth was higher at 10.4%. Easing of lockdown restrictions,
improved vaccination pace and low base supported the economic activity and output in the last
quarter. The nominal GDP rose by 17.5% YoY in Q2 FY22 and reflects price pressures across various
good and services in the economy. RBI had maintained its GDP growth forecast for FY22 at 9.5% in
the last policy meeting. Multiple economists and agencies have recently revised upwards India’s GDP
forecasts for FY22 in the range of 9-10.5%.
Globally bond markets continue to remain volatile on inflation and new Covid variant concerns
Globally, economies started to re-open with healthy vaccination progress. With large demand-supply
mismatches, global supply chain issues and rise in commodity and input prices, inflation across the
developed economies (US, UK and Eurozone) reached multi-decade highs and soared much above
their medium-term target levels of 2%. Hence, there is a broad consensus among central banks that
crisis-level monetary stimulus should be removed and accordingly bond yields have witnessed a
gradual rise.
However, bond markets turned defensive and yields fell sharply towards the end of Nov-21 driven by
concerns on new coronavirus variant Omicron. Rising number of infections could lead to stricter
border controls and negatively impact the global economic recovery. The concerns on new strain may
also slow down the policy normalisation by key central banks, especially the US Fed, which had
become relatively hawkish in the recent past. US Fed in its last policy meet had announced to taper
asset purchases by $ 15 bn on a monthly basis starting Nov-21. Earlier, Fed was buying $ 80 bn of
Treasuries and $ 40 bn of MBS monthly.
Fixed Income Outlook
6.22
6.33
6.00
6.05
6.10
6.15
6.20
6.25
6.30
6.35
6.40
6.45
6.50
07
During the month of Nov-21, US 10yr bond yield fell by 10 bps from 1.56% as of Oct 29, 2021 to
1.46% as of Nov 30, 2021. US bond yields continued to remain volatile during the last month reaching
peak of 1.68% before falling to below 1.5% level towards the month end.
US 10yr G-sec yield movement in last 3 months
Source: investing.com
US President Biden reappointed Jerome Powell as Federal Reserve Chair for another four-year stint.
It reassured investors of monetary policy continuity and gave some predictability as US Fed prepares
to slow the pace of bond purchases and eventually start hiking rates. Despite the Omicron variant
uncertainty, Powell recently commented that accelerated taper would be considered at the upcoming
FOMC meeting on 15th Dec. He cited strong economic recovery, stalled labour force growth & higher
inflation as support factors for ending the stimulus early.
India’s CPI inflation rose by 4.5% in Oct-21
India’s CPI inflation rose by 4.48% YoY in Oct-21 from 4.35% in Sep-21 (consensus forecast: 4.2%).
This is for the 4th consecutive month that CPI inflation has remained below the RBI’s upper band of
6%. On a sequential (MoM) basis, CPI inflation rose to a 5-month high of 1.4% as compared to 0.18%
in Sep-21 and 1.28% in Oct-20.
Core CPI (CPI excluding food and fuel) remained flat at 5.9% YoY in Oct-21. A favourable base from
last year kept the core reading in check, despite a broad-based increase in prices across sub-
categories. On a sequential basis, core inflation rose to 0.47% in Oct-21 from 0.22% in Sep-21. Fuel
inflation rose to 14.3% in Oct-21 from 13.6% in Sep-21, reflecting higher LPG and kerosene prices.
As per HDFC Bank research, CPI inflation is likely to remain below 5% in Nov-21 as well. A cut in
excise duty and VAT on petrol and diesel is likely to provide some breather to the inflation readings.
However, recent hike in tariff by telecom operators pose some upside risks to inflation. From Dec-21
onwards, inflation is expected to rise above 5% led by higher input/commodity prices and as
favourable base effect wanes.
Source: Ministry of Statistics and Programme Implementation (MoSPI)
US CPI inflation rose to a 31-year high of 6.2% YoY in Oct-21, clocking a higher print than market
expectations of 5.8% and as compared to 5.4% in Sep-21. A large part was of it was driven by energy
costs, which rose by 30% in Oct-21 from 24.8% in Sep-21 led by higher gasoline prices. On a
sequential (MoM) basis, CPI rose by 0.9% in Oct-21 from 0.4% in Sep-21. Core CPI inflation (inflation
excluding food and energy) rose by 4.6% in Oct-21, recording the highest print since Aug-91. US
inflation is likely to remain elevated in the near-term and is expected to ease from Q1/Q2 CY22
onwards as global supply chain disruptions ease.
US CPI inflation monthly trend
Source: tradingeconomics.com
1.2 1.2 1.4 1.4
6.2
0.0
0.2
0.4
0.6
0.8
1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
09
Outlook
RBI has gradually commenced the policy normalisation since the last monetary policy meeting (8th
Oct 2021). RBI discontinued its G-sec Acquisition Programme (G-SAP) which had supported the G-
sec yields at longer end of the curve (above 5yr segment) during H1 FY22. It also initiated the surplus
liquidity normalisation with increase in quantum and tenure of the variable rate reverse repo (VRRR)
auctions. The size of the VRRR auctions has increased from Rs. 4 lakh cr as of Sep-21 to Rs. 6 lakh
cr at present. The cut-off levels for 7-28 days tenure VRRR auctions have been trending closer to repo
rate (4%) recently from below 3.5% levels in Sep-21. This has resulted in flattening of the yield curve,
as yields at the shorter end have gone up more than the yields at the longer end of the curve.
India’s G-sec Yield Curve Comparison
Source: RBI, FBIL
Recent readings of various domestic high frequency indicators suggest that gradual economic
recovery is underway. Easing of lockdown restrictions and improved vaccination pace has been
supportive of growth. However, recent countrywide lockdowns being re-imposed in several
geographies across Europe and emergence of Omicron has brought in uncertainties around both
domestic as well as global growth recovery. Stricter border controls could delay the normalisation of
supply chain issues which have been weighing heavily on inflation.
Key global central banks have turned hawkish in response to multi-decade high inflation readings. Any
potential severity of the new Covid variant could change the stance of central banks and slow down
the policy normalisation process. We remain watchful of the commentaries from key global central
bankers.
RBI in its upcoming monetary policy meeting (8th Dec) is likely to adopt a wait and watch approach
given the uncertainty around Omicron. RBI’s focus has largely been towards nurturing the nascent
growth recovery. Last monetary policy meeting minutes also highlight that several members prefer a
data driven approach for making policy decisions.
We expect bond yields to gradually rise in the near to medium term given the huge G-sec borrowings
in FY22. The G-sec yield curve continues to remain quite steep up to 5yr segment, despite the recent
flattening of the curve. Beyond the 10yr segment, the risk-reward scenario looks unfavourable at
current juncture. Hence, fixed income investors should avoid the longer end of the curve. Steepness at
the shorter end of the curve provides lucrative opportunities to lock carry by investing up to 3yr
segment with low to moderate interest rate risk. The steepness in the curve shall compensate for any
MTM losses in the near to medium term.
3.30
3.80
4.30
4.80
5.30
5.80
6.30
6.80
7.30
3M 6M 1yr 2yr 3yr 4yr 5yr 6yr 7yr 8yr 9yr 10yr 12yr 14yr 20yr 30yr 40yr
30-Sep-21 30-Nov-21
Background:
Interest in global investing has risen sharply over the last couple of years. At the same time, the
MF/ETF opportunities to invest in global markets has also risen sharply. Total no. of MFs/ETFs
investing in global markets has increased from 34 in 2019 to about 52 in 2021. The total AuMs of
these MFs/ETFs has increased from Rs. 3,235 cr in 2019 to about Rs. 34,621 cr in 2021 (see chart
below).
These funds provide opportunities to invest in diverse countries/ regions/ themes. The MFs/ETFs
available for global investing can be broadly classified in to the following categories:
The interest in investing globally is still nascent with AuMs of MFs/ETFs investing globally being ~ Rs.
34,621 cr compared to Indian mutual fund industry AuM of Rs. 37.3 lac cr.
Objective of the study
The broad objectives of our study can be summarized as below:
• Analyze broader trends in the outperformance/ underperformance of certain regions/
geographies/themes
• Understand the investment horizons that should be used when selecting a geography/ theme
Deep Dive – Global Investment: Are there any clear trends?
18 21 23
52
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
0
10
20
30
40
50
60
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Number of Global Mutual Fund schmes AUM of Global Mutual Fund Scheme
Category No. of
Global Thematic 6 1,921
11
• See if a country starts outperforming after a period or extent of underperformance
• Understand if there are any well-defined upper/lower limits to a country’s outperformance
• Whether momentum driven allocation strategies could improve returns from global investing
Data and Methodology:
We used MSCI Indices from around 35 countries/global asset classes to back test our hypothesis.
Most of the data was available from 1990 while a few country indices were available only from mid/
late 1990s.
All of the indices used were denominated in USD which made comparison across regions easier. We
sourced our data from Bloomberg.
We have rebased the indices being compared to 100 at a common starting date. We then took the
ratio of these funds to compare outperformance or underperformance. When the chart is trending up,
it means that the index in the numerator is outperforming the index in the denominator. When the chart
is trending down, it means that the index in the numerator is underperforming the chart in the
denominator.
Results:
1. Think Long term:
Outperformance/ underperformance of a region/theme could last for a long time. These drivers could
include economic growth, demography, corporate governance, macroeconomic and currency stability,
regulatory and political factors. Such drivers could sustain for a decade or more. There are no
upper/lower limits of outperformance or periods of outperformance. The charts below show some
examples which illustrate that outperformance/ underperformance can last a very long time frame and
extent.
0.5
1.0
1.5
2.0
2.5
0.0
0.2
0.4
0.6
0.8
1.0
1.2
0.0
2.0
4.0
6.0
8.0
10.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Source: Bloomberg, HSL
12
The above examples show that investors should not exit a geography simply because it has
outperformed by 20/30% or has outperformed over the past 2 or 3 years. In trying to optimize
performance over the near term, investors might miss out on much larger and longer trends.
2. USA has been a huge outperformer in the last decade led by Technology:
The charts below show the outperformance of MSCI USA against MSCI World and against MSCI
Emerging Markets. In fact the weightage of USA in MSCI world has increased from 48% in 2012 to
68% now.
The US outperformance has partly been led by its technology sector. The chart below shows that
Nasdaq has outperformed the broader US indices over the past decade and the outperformance has
been a continuation of an even longer term trend.
3. India has outperformed the broader Emerging Markets
Within the Emerging Markets basket India has outperformed over the long term. The trend line is
unambiguously increasing even though there could be volatility around that trend line in shorter time
frames. Even during the last decade, when Emerging markets have significantly underperformed
against MSCI World, India’s performance has been relatively better. We expect India to continue to be
an important market for global investors.
1.0
1.5
2.0
2.5
3.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
0.0
0.5
1.0
1.5
2.0
2.5
13
4. Contrarian investing is difficult in global markets:
At the beginning of this deep dive, our objective was simple. We wanted to define the outer limits of a
country’s outperformance/ underperformance relative to MSCI World index and to simply invest in the
underperforming geography once it reached close to that limit and reduce allocation to the
outperforming geographies. But as the graphs in the sections above show, there is no easy way to do
this simply because there are no well-defined bounds to the outperformance/ underperformance of a
country. This problem has been particularly acute in the last decade because of the significant
outperformance of the US in the last decade.
The table below summarizes the total instances when countries underperformed MSCI world index in
the past and compares the forward looking average and median outperformance:
More sophisticated, deeper analysis is required to come up with rules for contrarian investing.
5. Momentum based allocation is difficult in global investing:
After our failure with the back testing results for contrarian investing above, we decided to turn our
hypothesis 180 degrees. Surely if contrarian investing was not working then momentum investing
should work. So we decided to back test a simple momentum based strategy. We created two
baskets- the first one was an equal weighted basket of 5 countries which had been the best
performing countries over the past 12 months. The second basket was an equal weighted basket of 5
countries which had been the worst performing countries over the past 12 months. We then compared
the returns of these two baskets over the next 12 months. While the best performing countries did
outperform the worst performing countries, the results were not statistically significant with long
periods of underperformance. In fact, the best performing countries delivered superior returns only in
56% of the observations. The results are shown in the chart below:
More sophisticated, deeper analysis is required to come up with rules for momentum investing.
Relative under
Obs. with relative o/p over next 1 year 46.3% 43.1%
Obs. with relative u/p over next 1 year 53.7% 56.9%
Average outperformance over next 1 year 1.7% 2.2%
Median outperformance over next 1 year -2.7% -5.9%
Relative under
performance in
Obs. with relative o/p over next 2 year 46.8% 48.9%
Obs. with relative u/p over next 2 year 53.2% 51.1%
Average outperformance over next 2 year 2.2% 4.9%
Median outperformance over next 2 year -2.2% -0.9%
0
500
1000
1500
2000
2500
3000
-150%
-100%
-50%
0%
50%
100%
Fe b
-9 1
Ju n
-9 2
O ct
-9 3
Fe b
-9 5
Ju n
-9 6
O ct
-9 7
Fe b
-9 9
Ju n
-0 0
O ct
-0 1
Fe b
-0 3
Ju n
-0 4
O ct
-0 5
Fe b
-0 7
Ju n
-0 8
O ct
-0 9
Fe b
-1 1
Ju n
-1 2
O ct
-1 3
Fe b
-1 5
Ju n
-1 6
O ct
-1 7
Fe b
-1 9
Ju n
-2 0
O ct
-2 1
Equal weighted top 5 indices minus bottom 5 indices MSCI World
Top 5 Indices - Bottom 5 indices
Total Obs. 358
Average outperformance over next 1 year 2.3%
Median outperformance over next 1 year 2.0%
14
Summary:
• Global investing likely to grow sharply: Global investing is likely to grow multifold in the years to
come and the interest in global investing is still nascent. Global investing adds diversification to an
investor’s portfolio, adds USD exposure to the portfolio and provides access to high quality
companies across the world.
• Think long term: Global investing should not be about 2 or 3 year or investing for a 20 or 30%
outperformance. Some of the drivers of a region’s outperformance could be structural and last for a
long time and investors should think about mega-trends when investing in different geographies.
The extent of outperformance/ underperformance could be substantial. Investors should not exit a
geography simply because it has underperformed/outperformed over the past couple of years.
• US has been a standout outperformer led by technology: US equity markets, the Nasdaq in
particular, have been a standout outperformer over the last decade. However, as discussed, the
outperformance should not dissuade investors from investing in these indices.
• India has outperformed Emerging market index: India has been in a structural uptrend vs other
emerging markets and we expect India to remain an important geography for global investors.
• Contrarian investing is difficult in global markets: We tested mean reversion/ contrarian
investing methodologies but our results were inconclusive. It is not easy to devise such frameworks
while investing globally. There are no well-defined upper/ lower limits to outperformance of a
geography. There are no well-defined time frames for outperformance or underperformance of a
geography. More sophisticated analysis would be needed to use such methodologies.
• Momentum based allocation is difficult in global investing: We back tested a simple
momentum based strategy for investing in global markets but the results were inconclusive. More
sophisticated studies (over different timeframes/ methodologies) would be needed to design any
momentum based strategy.
15
Introduction
Inflation measures changes in prices of goods and services over a certain period (usually a year). It is
one of the most critical macroeconomic parameters for any economy. Inflation can plunge economies
into long periods of instability, if it remains uncontrolled beyond a timeframe and target. Managing
inflation within a target range remains one of the top priorities for both central banks as well as
governments, given its taxing effect and impact on host of macroeconomic parameters such as
growth, employment and currency, among others.
Government agencies conduct various household surveys to estimate a common basket of goods and
services to measure the average consumer’s cost of living. The prices of this common basket are
tracked over a period of time to arrive at inflation trends. The cost of this basket at a given time
expressed relative to a base year is the consumer price index (CPI), and the percentage change in the
CPI over a certain period is consumer price inflation, the most widely used measure of inflation. The
CPI basket is usually kept constant over time for consistency in inflation measurement. However,
occasionally it is adjusted to reflect the changing consumption behaviour.
Inflation patterns from US history
We have chosen US inflation for studying inflation patterns because of two primary reasons. Firstly, at
present, US inflation has been trending at multi-decade high levels (6.2% YoY in Oct-21) and is one of
the biggest themes for markets across the world. Monetary policy decisions of the US Fed, the most
influential central bank in the world, hinge closely around inflation at current juncture and thus makes
the inflation discussion relevant. Secondly, organised data for US inflation is available dating back to
several decades, which helps in studying patterns covering large number of economic cycles and
across major global events.
Chart below shows trend of CPI inflation since 1944 in the US. Since World War II, there have been
seven periods during which CPI inflation was higher than 5%. This occurred in 1946-48, 1950-51,
1969-71, 1973-82, 1989-91, 2008 and 2021 (ongoing).
Episodes of post-World War II inflation in US (CPI Inflation - YoY %)
Source: Federal Reserve Economic Data (FRED)
-4.0%
-1.0%
2.0%
5.0%
8.0%
11.0%
14.0%
17.0%
20.0%
constraints, rise in commodity
prices and pent-up demand
controls, supply constraints, and
Ep 5: Iraqi invasion of Kuwait;
Operation Desert Storm
16
During 1973-82 period, the US witnessed its longest stretch of high inflation for nearly a decade. This
was driven by two episodes of a sharp surge in oil prices. The first was caused by oil embargo
implemented by the OPEC while the second surge was a result of decline in oil production due to the
Iranian Revolution and the Iran-Iraq war.
The three most recent inflationary episodes were largely because of surge in crude oil prices.
However, unlike in the past, today US has become a net annual petroleum exporter and uses an
increasing share of renewable energy. As a result, dependence of US economy on oil prices has
altered materially.
Out of the six high inflation periods mentioned above, 1946-48 period has most similarities with the
current high inflation dynamics. Period of post-World War II saw elimination of price controls imposed
during the war, supply shortages, and pent-up demand which led to high inflation. Similar trend
(except for price control) has been witnessed post the easing of Covid lockdown restrictions.
Key drivers of Inflation
• Money supply – If the money supply grows too big relative to the size of an economy, the
purchasing power of currency diminishes and prices rise. This relationship (quantity theory of
money) is one of the oldest hypotheses in economics.
• Demand-supply mismatch – Supply shocks can disrupt production because of rise in production
costs or shortage of raw material/labour. Reduction in overall supply leads to ‘cost-push’ inflation.
On the other hand, demand shocks led by strong economic growth and low interest rates can result
in temporary demand boost. If demand exceeds an economy’s production capacity, it results in
‘demand-pull’ inflation.
• Inflationary expectations – If firms or consumers anticipate higher prices in near future, these
expectations feed into wage negotiations and contractual price adjustments and leads to inflation
inertia.
To control inflation, central banks typically adopt contractionary monetary policies by raising interest
rates or reducing money supply to limit demand pressures. In some cases, the government may
directly set prices to manage high inflation. However, such price-setting measures usually result in
large subsidy bills for government to compensate producers for lost income. Some central banks also
choose to impose monetary discipline by fixing the exchange rate i.e. tying its monetary policy to that
of another country. Such policies may not be fruitful when inflation is driven by global developments.
Studying Inflation patterns, drivers and controls
Period High inflation persistence in months
1946-48 28
1950-51 13
1969-71 23
1973-82 115
1989-91 27
2008 3
during which inflation remained above 5%, four
periods lasted between 13-28 months. High
inflation period of 1973-82 lasted for almost a
decade. In 2008 period, inflation remained high
only for 3 months. During last six months (May to
Oct 2021), CPI inflation in US has been trending
higher than 5% (6.2% in Oct). US Fed chair,
Jerome Powell recently emphasized that current
price pressures in US are not transitory anymore.
He expects inflation to ease only in the second half
of CY22.
Given the important role of inflationary expectations in driving future inflation, central bankers have
been increasingly targeting to manage the same. Through clear and transparent policy
communications, policymakers announce their intention to keep economic activity low temporarily to
bring down inflation, hoping to influence expectations. The influence of their communication on
inflation expectations remains a function of credibility of central bank.
Central banks often grapple with multiple challenges while implementing monetary policies. Inflation
impacts other important macroeconomic variables such as growth, employment and currency. Hence,
any decision around managing inflation can’t be taken in isolation and balancing among other
variables remain ever challenging task for policymakers.
US CPI Inflation and US Fed Funds Rate historical trend
Source: Federal Reserve Economic Data (FRED)
The chart above shows the movement of US CPI inflation and US Fed Funds rate since 1954. The
movement has broadly been in the same direction till 2008 period. During 2008-09 period, post Global
Financial Crisis, Fed Funds rate fell sharply to 0.1-0.2% (from a high of 5.3% in Jul 2007) and
remained below 0.25% till Dec 2015. This explains the change in movement of inflation and Fed
Funds rate post 2008 period. Covid crisis era monetary policies in US again brought down Fed Funds
rate to around 0.1% since Apr 2020 from peak of 2.4% in Jul 2019 and continues to remain there
today.
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Dots to Join
18
1. India’s Debit Card Users: Debit card ownership in India has grown 5x in the last decade. From
18.5 crore debit cards in April 2010, India has 91.4 crore debit cards held by individuals, families,
and institutions as of August 2021. Also, there are 67 debit cards per 100 people in India as of
August 2021 compared with 15 per 100 a decade ago. Since most people use multiple cards, 67
debit cards per 100 people doesn’t mean 67% of Indians have, or use, debit cards.
2. Diwali Sales: Diwali festive sale crossed Rs. 1.25 tn mark, a record figure in the last decade. The
Confederation of All India Traders (CAIT), which represents about 70 mn traders, said the
tremendous sales response came as a much-needed breather for retailers facing a slowdown for
the past two years. It has also made businesses optimistic about the near future.
3. Nifty Q2 Results: High prices of commodities and energy have led to a sharp decline in corporate
margins across sectors but are yet to to affect India Inc’s overall profits.
• The combined net sales of consumer companies were up 13.8% YoY in Q2 FY22 — growing at the
slowest pace in the last 3 quarters. Their combined operating profits were, however, down 4.3%
YoY and their operating margin was down 300 basis point YoY to 15.3% of revenues in the second
quarter. One basis point is one-hundredth of 1%.
• The combined net profits of commodity producers such as Reliance Industries, JSW Steel, Bharat
Petroleum Corp and Ultratech Cement were up 48% YoY in Q2FY22 to Rs. 31,800 crore from
around Rs. 21,500 crore a year ago and around Rs. 28,000 crore in the first quarter of the current
FY.
42/50 Companies that have declared results (till 10th Nov)
26.50% YOY Revenue growth
19.20% YOY EPS growth
19
4. Profit-to-GDP Ratio: Listed companies’ net profit as a % of GDP has hit a decadal high and is
expected to edge even higher over the next 2 financial years. India Inc’s net profit stood at Rs 8.4
tn, or 4% of GDP of Rs 210.0 tn for the trailing 12-month period ending September, 2021. This is
the highest since FY12, when it was at 4.6%.
5. 2-wheeler Production: Production for India’s top two-wheeler makers, Hero MotoCorp and
Honda Motorcycle and Scooters India (HMSI), has been estimated to have slumped to its lowest in
7 years in October and November 2021. Lack of sales momentum for motorcycles and scooters
during festive months, resulted in piles of unsold stock. The production for October and November
2021 declined 33.0% for Hero MotoCorp and 34.3% for HMSI as compared to their respective
peak productions during the same period in 2018-19.
Source: BS
Source: BS
Source: BS
Index Performance
20
Data as on 30th November 2021. Returns less than 1 year are in absolute terms and greater than 1 year are CAGR
Source: ACE MF, BSE, NSE
Index Performance (30-November-21)
Indices 1 M 3 M 6 M 1 Y 2 Y 3 Y 5 Y 10 Y
NIFTY 50 -3.9 -0.9 9.0 31.0 18.6 16.0 15.6 13.4
S&P BSE SENSEX -3.8 -0.8 9.9 29.3 18.2 16.4 16.4 13.5
S&P BSE 500 -3.0 0.4 10.6 37.0 22.2 17.3 15.8 14.3
S&P BSE Mid-Cap -2.3 3.5 13.5 46.0 27.8 17.9 14.6 15.9
S&P BSE Small-Cap -0.2 3.8 18.4 65.6 43.4 24.6 17.8 16.4
NIFTY AUTO -6.1 5.7 1.1 19.3 14.5 4.6 3.1 11.6
NIFTY BANK -8.7 -2.0 0.5 20.6 5.7 9.9 13.9 15.3
Nifty Financial Services -6.7 -3.0 5.2 22.7 11.1 15.3 18.2 17.3
NIFTY FMCG -2.2 -5.4 6.1 17.9 9.8 7.5 12.8 13.8
NIFTY INFRA -1.7 5.3 14.6 44.8 22.1 17.1 12.2 7.4
NIFTY IT 1.8 1.4 29.2 61.0 52.7 33.7 28.3 19.5
NIFTY MEDIA -3.3 35.6 23.3 44.4 8.8 -5.2 -3.8 6.3
NIFTY METAL -6.5 -9.0 0.8 77.8 40.6 18.0 13.2 6.7
NIFTY NEXT 50 -0.7 0.5 10.7 37.7 20.9 14.8 13.5 16.5
NIFTY PHARMA -1.6 -4.8 -2.8 15.4 29.1 13.8 4.3 11.2
NIFTY PRIVATE BANK -9.8 -3.3 -2.6 10.6 1.6 6.3 12.1 0.0
NIFTY PSU BANK -9.4 9.6 5.5 64.3 -2.1 -4.2 -4.2 -1.5
NIFTY REALTY -2.2 26.1 45.1 86.7 31.4 28.1 23.8 8.8
S&P BSE Consumer Durables -0.3 15.4 29.1 59.4 31.5 28.0 30.7 22.5
S&P BSE OIL & GAS Index -3.5 2.4 6.3 32.1 7.4 9.7 7.9 7.9
S&P BSE Power Index 3.6 18.3 22.7 72.9 33.9 21.8 11.2 6.0
S&P BSE Telecom 6.7 14.9 35.9 57.8 27.9 22.6 8.9 3.9
Macro Economic Indicators
GDP Growth (%): Inflation:
Domestic Yield Movement: 10 Year US Treasury Yield Movement:
Nov-20 Feb-21 May-21 Aug-21 Nov-21
US Yields 0.84 1.41 1.58 1.31 1.46
Repo 4.00 4.00 4.00 4.00 4.00
1 Yr CD 3.60 4.13 3.98 3.90 4.33
10 Yr Gsec 5.91 6.23 6.02 6.22 6.33
Sep-20 Dec-20 Mar-21 Jun-21 Sep-21
IIP 0.98 2.16 24.23 13.81 3.06
Oct-20 Jan-21 Apr-21 Jul-21 Nov-21
Composite PMI 58.0 55.8 55.4 49.2 59.2
Oct-20 Jan-21 Apr-21 Jul-21 Oct-21
WPI 1.31 2.51 10.74 11.57 12.54
CPI 7.61 4.06 4.23 5.59 4.48
Source : Ministry of Statistics & Programme Implementation
Source : investing.com, RBI, Bloomberg
Q1
FY21
Q2
FY21
Q3
FY21
Q4
FY21
Q1
FY22
Q2
FY22
Quarterly
Source : Ministry of Statistics & Programme Implementation
7.6 8.4
Repo Rate 10 Yr G-sec 1 Yr CD Rates (RHS)
0.84
1.46
N o
v- 2
58.0 59.2
FII Equity Flows (Rs cr): FII Debt Flows (Rs cr):
USD vs. INR: Gold Price (Rs/10gm):
Brent Crude (USD/Barrel):
Brent
$ vs. 74.05 73.47 72.62 73.01 75.17
Gold Price 48,807 46,151 48,975 47,424 48,114
FII Debt
Source : NSDL
Source :Investing.com
FII Equity
Source : NSDL
N o
v- 2
N o
v- 2
N o
v- 2
India Horizons All-star Portfolio
Performance
Data as on 30th Nov 2021 Launch Date: 06-Apr-21, Returns less than 1 year are absolute, more than 1 year are CAGR
Stock % Stock %
Infosys 5.9% Varroc Engineering 3.1%
Apollo Hospitals 5.6% Crompton G. Consumer Elec 3.0%
Reliance Industries 4.9% Laurus Labs 2.8%
State Bank of India 4.8% Larsen & Toubro 2.8%
Saregama India 4.7% PNC Infratech 2.7%
Somany Ceramics 4.5% Supreme Industries 2.7%
Axis Bank 3.9% Sun TV Network 2.7%
Birla Corporation 3.7% Max Financial Services 2.6%
Atul Ltd 3.6% Mrs. Bectors Food Specialities 2.4%
Minda Industries 3.6% Zydus Wellness 2.3%
Krishna Institute of Medical
Jk Cement 3.3% KEC International 1.6%
Radico Khaitan 3.3% Cash 2.2%
Large Cap, 40%
Mid Cap, 29%
Small Cap, 29%
India Horizons All-star Portfolio NIFTY LargeMidcap 250 NIFTY 500 Multicap 50:25:25
India Horizons Bellwether Portfolio
Performance
Data as on 30th Nov 2021. Launch Date: 06-April-21. Returns less than 1 year are absolute, more than 1 year are CAGR
Stock % Stock %
Sciences 3.5%
SBI Life Insurance Company 5.3% Mahindra & Mahindra 2.9%
ICICI Bank 5.1% Ultratech Cement 2.7%
Reliance Industries 5.0% Sun TV Network 2.5%
State Bank of India 5.0% UPL Ltd 2.4%
Carborundum Universal 5.0% Bajaj Auto 2.1%
ITC 4.9% Godrej Agrovet 1.5%
Dr. Reddy's Laboratories 4.1% Huhtamaki PPL 1.3%
TCS 4.1% KEC International 1.2%
Larsen & Toubro 3.9% Cash 1.4%
Bata India 3.8%
Large Cap, 74%
Mid Cap, 6%
Small Cap, 18%
India Horizons Bellwether Portfolio Nifty 50 S&P BSE 200
25MARKET MACROSCOPE | INVESTMENT PRODUCTS | DECEMBER 2021
CROSSWORD
Note : Solution for the above crossword will be provided in next month’s newsletter
Answers of last month’s crossword:
1 2
1 Fall in value of an asset over time (12)
4 Shares offered by a company to its shareholders for free (5)
5 ______ ratio is a modification of the Sharpe ratio that penalizes downside volatility only (7)
7 _______ bond offers a coupon payment forever (9)
8 A policy, terminated due to non payment of premium amount on due date or even after the
grace period, is called a______ policy (7)
9 To lease a property to a subtenant (6)
12 Investing a fixed sum at regular intervals (acronym) (3)
13 Wall Street of India (5,6)
14 Peak-to-trough decline during a specific period for an investment (8)
Down
2 Two or more people working together to run a business (11)
3 Financial institution that holds customers' securities to prevent them from being stolen or lost
(9)
6 Any asset pledged to take a loan(10)
10 A reference index against which fund's performance is compared (9)
11 ________ funds are debt funds that invest in government securities (4)
Across
Disclaimer
27
Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This note has been prepared exclusively for the benefit and internal use of the recipient and does not carry any right of reproduction or disclosure. Neither this note nor any of its contents maybe used for any other purpose without the prior written consent of HDFC Securities Ltd (HSL)
Information herein is believed to be reliable however HDFC Securities Ltd. does not warrant its completeness or accuracy. Although HDFC Securities Ltd. tries to ensure that all information and materials in relation to the products, services, facilities, offerings or otherwise provided as part of its website or through any other source of communication, is correct at the time of inclusion on the communication, it does not guarantee the accuracy of the information.
Use of this presentation /note is at the sole risk of the user / client. The data and information provided on the website or in any presentation / note is not professional advice and should not be relied upon as such. HDFC Securities Ltd. may at any time edit, alter and or remove any information in whole or in part that may be available and that it shall not be held responsible for all or any actions that may subsequently result into any loss, damage and or liability. Nothing contained herein is to be construed as a recommendation to use any product or process, and HDFC Securities Ltd. makes no representation or warranty, express or implied that, the use thereof will not infringe any patent, or otherwise
HDFC Securities Ltd. would have an exclusive discretion to decide the clients who would be entitled to its investing services. HDFC Securities Ltd. also reserves the right to decide on the criteria based on which clients would be chosen to participate in these services. HDFC Securities Ltd. is incorporated under the regulatory laws of India and hence adheres to the same laws for entering into or executing an agreement with the client
This note does not purport to contain all the information that the recipient may require. Recipients should not construe any of the contents herein as advice relating to business, financial, legal, taxation, or investment matters and are advised to consult their own business, financial, legal, taxation and other advisors concerning the company.
This note does not constitute an offer for sale, or an invitation to subscribe for, or purchase equity shares or other assets or securities of the company and the information contained herein shall not form the basis of any contract. It is also not meant to be or to constitute any offer for any transaction.
As a distributor, HDFC Securities Ltd. does not assume any responsibility or liability arising from the sale of any product and the investor's contract for purchase/sale is directly with the product provider. HDFC Securities Ltd. may earn a distribution fee from the product provider on completion of sale of such products. To reiterate, HDFC Securities Ltd. only acts as a Distributor. There is no element of advisory involved.

december 2021 investment products

Documents