The markets are in a nervous state of anticipation. While the index has somewhat come back to where it was about a year ago, many ‘quality portfolios’ are lagging behind from a one-year perspective. One reason is that new high-flier stocks have entered the Nifty index and are continuing to run based on a few momentum stocks.

Most fundamental-based investors prefer not to join a momentum stock, especially when it has run up a lot. The fear is about not entering the party too late. At Jamā Wealth, we are usually not concerned about missing out on specific stock rallies because we prefer to stick to our stated investment philosophy of “Roots and Wings.” Even if that means underperformance for a while, we would consider that as the price of ‘not following the herd’, and of ‘sticking to our investment philosophy

This is a time when one has to trust one’s philosophy. When the stock of a strongly performing logistics company falls by 20%, I would rather take it as an opportunity to buy low, rather than panic that the stock has fallen. especially given that India is on the verge of a logistics boom.

Behavioral investing tells us that investors do not like to book losses. When their beloved stocks or the market index fall, investors experience a notional loss. They regret that they did not see the fall in hindsight when the levels were higher. Typically, when markets recover after a fall, investors do try to exit when the earlier highs are reclaimed. They feel they are getting another opportunity to exit on a high. A lot of traders also follow Technical analysis, which sometimes forms patterns suggestive of further fall after a recovery. However, once a strong breakout above the earlier high happens, the momentum gathers strength.

Recent Quarter

At a broad market level, the September quarter numbers have been a mixed bag. Some sectors, such as BFSI, have done well, while IT performed better than expected. Some sectors, such as oil and gas, construction, etc., have reported lower numbers. Banking is considered a proxy for the economy. A positive outlook for an economy can be sensed from how the banking stocks are performing. Apart from pushing up the index due to their relatively higher weight, banks doing well is a positive sign for the economy. This re-confirms our stand, as we are quite bullish on the India story. We expect the trend to continue.

However, the key to successful investing is to identify specific companies that are delivering consistently above average performance and remain invested in them. While sectoral analysis is important, we will have strong outperformers in an industry that is lagging and underperformers in a sector that is otherwise doing well.

Dollar Rupee Movements

Indian stock market indices went down after continuous FII selling since October 2021. However, the last few days/ weeks are showing net buying by FIIs. This indicates that FIIs are expecting the Rupee (INR) to stabilize. The Dollar index is now moderating which is a good sign for India.

Consumption-led growth, backed by the willingness of the government to spend on infrastructure, augurs well for the Indian economy. As per the IMF, India continues to be a lone star in an otherwise gloomy global environment. India continues to be the most attractive investment decision. We will eventually see FII money coming in.

The rupee depreciation is likely to stem, which means exchange rate-related gains for Indian investors will get capped. So, India should have a higher allocation within an investor’s portfolio. However, over a period of time, the US economy as well as the global scenario will improve, and we will see gains from investments made in the long run. We have been maintaining this view even while the markets were falling due to FII outflow. Liquidity will drive short-term movements, but the long-term journey continues to be firmly on the up.

The US Recession & Tech Selloff

The US, which is the largest economy in the world, has already seen 2 consecutive quarters of negative growth, which is the most common definition of Recession in quantitative terms. Stocks like Amazon are down by 40% from their peaks and most tech companies are retrenching their workforce in large numbers.

To formally call the recession, people are waiting for the NBER and its economists to subjectively decide and make a pronouncement. Our House view is that the US is in recession and a major part of the world is flirting with it. Even China is projected to report significantly lower growth numbers. India appears to be in a much stronger position.

However, recessions are relatively short. They are akin to turbulence in mid-air, which just requires us to fasten our seat belts. What needs to be watched is whether we are heading for a depression. There is no evidence to suggest the same.

Indian Markets

We have been maintaining that increased FII allocation due to relatively favourable economic indicators for India will result in a rally in Indian stocks in 2023. Budget expectations may provide further impetus to the rally. However, global economic activity, lower liquidity, and the dynamic geo-political situation may influence the market direction in the short run. We advise not to predict market movement for short periods. We do not think anyone is in a position to do so.

India is the most attractive investment destination and will continue to attract capital. We believe allocations to India will increase. P/E is a function of Liquidity. We had Nifty touching 40 levels not too long ago (Feb 2021). PE of around 20 is quite attractive, even if it looks higher relative to other markets.

The stand-out factor for our bullishness on India is India’s resilience. The economy continues to grow despite the rest of the world heading toward or already being in recession. An active central government and central bank have demonstrated a willingness to take corrective action, sometimes proactively, in the best interests of the economy. We are unlikely to see runaway inflation, and therefore interest rates will stabilize. There will always be reasons for nervousness, but the long-term India story is not just intact but growing strong.

While there will be winners in all sectors, the key is to choose the right stocks. However, at the sector level, we expect BFSI, chemicals, innovative tech, and FMCG to do well. Export-oriented companies will benefit from the rupee’s depreciation.