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Markets Riding the Seesaw 🙃

While the Nifty ended flat this week, it has truly exhibited a random walk of alternate ups and downs through the week. Where are we headed really?

A lot of negatives

The markets have been marred by several negative factors, mostly revolving around inflation. Directly or indirectly, they link back to rising inflation, and have been a cause for increasing worry. Some of the recent developments on this front have been:

  1. Indonesia banned the export of palm oil. It being the largest supplier of the most-used edible oil impacts prices and inflation.

  2. Supply chain issues continue both internationally and domestically. Globally, containers are in short-supply, and In India, there is shortage of railway carriages.

  3. Coal shortages in India resulted in power outages, which have been impacting production across the country.

  4. Growth in India’s 8 core sectors slowed down to 4.3% in March, from 6% in February. The only 3 sectors to see faster growth were cement, fertilisers and electricity.

  5. Indian IT companies dragged the markets as concerns increased over slowing global growth and supply issues. High wage inflation and attrition have been eating into margins.

  6. Foreign investors continued pulling money out of India. This can further exacerbate as interest rates rise globally.

  7. The US markets were shaken up as tech stocks started showing cracks. Twitter went through its own share of drama, Amazon reported a loss, Meta’s growth slowed down drastically, and Netflix lost subscribers.

  8. The US GDP fell 1.4% annually in 1Q, its weakest quarter since the lockdown in 2020. The economy is facing lower growth and high-and-sticky inflation. Amid this, the central bank has been hinting at more aggressive monetary policy tightening.

  9. China’s zero-tolerance policy towards COVID has resulted in massive lockdowns, trade halts, logistical blocks and more-pressured supply chains.

  10. The Russia-Ukraine war doesn't seem to be stagnating or coming to an end. New threats and developments around nuclear power flex, gas supply cuts, new arms shipments and invasion of new territories continue keeping global markets at edge, and worried about continued inflationary pressures.

And some positives?

Well, just some positives. It almost looks like we’re hunting for positives just for the sake of making this list.

  1. Domestic buying continued. The Indian markets luckily have moved away from foreign fund dependency, and that keeps the markets from seeing an absolute carnage.

  2. At Rs. 1.68 lakh crore, GST collections crossed the Rs. 1.5 lakh crore mark for the first time in April 2022. The rise can be attributed to the ongoing economic recovery, anti-evasion activities, and rate rationalisation.

Um, that’s it for now!

What next?

Global inflationary pressures are expected to continue rising as the underlying factors escalating inflation remain unresolved. Geopolitical tensions and supply chain disruptions will continue spiking prices.

With this, central banks are increasingly tightening monetary policy, and some are getting more aggressive at it.

The most likely impact of high inflation and higher monetary policy is slower growth. As earnings growth reduces, the markets are likely to get impacted negatively in the near-term.

At the same time, valuations have been at a premium that’s at an all-time-high. With growth likely to falter, and with interest rates going up, valuations too are likely to take a hit.

However, any resolution or easing on underlying issues, or continued economic recovery despite challenges can lead to buoyancy.

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