The world has no chill, like the troubled kid in the neighborhood. From COVID-19 to war to economic inflation, there is and will always be something that requires immediate attention and action!
Some recent news headlines reflect the Western world’s troubled and bleak state. One report states that “millions of people in the UK were forced to skip meals or go a whole day without eating in recent months.”
In France, workers are on strike, demanding better pay amid swirling warnings of a tough winter ahead in Europe. A panel of economic advisers in Germany suggested that energy relief measures be tightened because the benefit should be received by those who actually need it and high-income individuals should bear the costs; raising the top income tax rate or imposing an energy solidarity tax on high-income individuals would help the government fund relief measures. The ongoing crisis also led to four German companies, some over 125 years old, declaring insolvency.
However, the eurozone witnessed economic growth in the third quarter, but at a slower pace. The real GDP was up by 0.2% QoQ and 2.1% from earlier years. The chaos can be well understood in terms of policy conflicts among the European nations. The European Central Bank (ECB) continues to tighten policy in order to tackle inflation and limit credit growth, while many eurozone governments, on the other hand, are rolling out subsidies to offset rising energy prices and stabilize household purchasing power.
In the USA, the annual inflation rate slowed for a 4th month to 7.7% in October, the lowest since January, and below forecasts of 8%, a sign of slowing inflation in October sparked speculation the Federal Reserve might become less aggressive with interest rate hikes. The interest rate on a 30-year mortgage now exceeds 7%, and as a result, mortgage demand drops sharply. Although interest rates have risen, they remain historically low and below the rate of inflation. Thus, it will likely take further rate hikes to slow the economy.
Huge numbers of tech employees have lost their jobs in recent days as tech behemoths like Meta, Twitter, Salesforce, and other companies reduce manpower as the year comes to an end. At least 20,300 US tech professionals were laid off in November, with more than 100,000 laid off since the start of the calendar year.
Although in October the US job market continued to perform better than expected, demonstrating a surprising degree of resilience for the US economy in the face of severe headwinds, China has become less transparent, considering the slowing GDP growth. The number of economic indicators released by China’s National Bureau of Statistics has sharply declined, resulting in less clarity about the actual state of affairs. Global funds also paused investment in Chinese equities due to demand for ex-China emerging market strategies. MSCI China has delivered nil returns in the last 30 years, back to where it began.
Economic monthly updates:
- According to FADA, vehicle sales increased by a massive 57 percent in Navratri 2022 on a YoY basis.
- Retail inflation is above expectation at 7.41 percent in September.
- GST collection stood at Rs. 1.52 Lac Cr. For the month of October 2022
- Consumer Confidence in India increased to 80.60 points in September from 77.30 points in July 2022.
- The S&P Global India Manufacturing PMI increased to 55.3 in October 2022 from 55.1 in September
- Services PMI was up to 55.1 in October 2022 from September’s six-month low of 54.3
- September saw the generation of 8.3 crore e-way bills, which is significantly higher than 7.7 crore e-way bills generated in August.
- Data from GSTN showed that over 76.8 million e-way bills were raised in October, compared with more than 84 million electronic permits raised in September.
- Currency with the public rises 71.84% within six years of demonetization in India.
Despite the Fed raising interest rates, the Indian equity market crossed the 18,000 mark on the last day of October and has continued to rise. FIIs, who were net sellers a year ago, are now net buyers. Nifty 1 Year Forward PE stands at 19.6x against its long-term average of 18.5x, and Nifty 1 Year Forward PB is at 31.x against its long-term average of 2.7x.
The world market cap to GDP ratio is at 97.8%, down from its high in FY22. MSCI India has outperformed MSCI Emerging Markets by a wide margin and delivered superior returns as compared to its peers. A mixed bag of results for the July-September quarter by the Indian Inc. As per Motilal Oswal, the profits of 32 Nifty companies slipped 2% year-on-year, led by global cyclical industries such as metals, oil, and gas. Excluding these, it estimates that the profits grew 25% YoY, led by the BFSI pocket.
Going forward, the market will remain volatile, largely driven by inflation data (global and domestic) and the US Fed and RBI’s decisions to counter the same and geopolitical factors. Furthermore, the possibility of recessions in developed countries cannot be ruled out. The banking and auto sectors look good for the near term.
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