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The End of One Cycle, and the Beginning of Another ♻️

After the celebration of hitting an all-time high on the indices a few weeks back, the Nifty comes right back down, dropping by yet another 1% last week.


What’s finally giving the market a breather? After all, the RBI and Fed, increased rates by a lesser quantum - 35 bps and 50 bps respectively.



With inflation showing some initial signs of cooling, the markets globally cheered in anticipation of slower rate hikes.


Lower rate hike aggression

The RBI hiked rates by 35 bps, slower than the 50 bps previously. It also maintained its stance of focusing on ‘withdrawal of accommodation’. The Fed too slowed down, raising rates by 50 bps, versus 75 bps earlier.


Slower growth ahead

However, this hardly signifies a pivot in the economic situation. After all, the rate hikes do show have to show up in a slower economy. And when it hits the economy, corporate earnings is when you see the typical slower GDP, lower demand, slower earnings growth, and valuation hit.


While we seem to be off the rate hike aggression peak, we seem to be at the beginning of a slowdown cycle, which is what will get factored into the markets in terms of earnings downgrades and valuation de-rating.


In India, The RBI, after all, did lower GDP projections for FY23 to 6.8%. It also maintained the inflation projection at 6.7%, which remains above the comfort level of 4%, +/- 2%


Of course, the US has been far worse - strong jobs data + higher-than-expected November wholesale prices = are not a good sign! Even after the slower raising of rates, investors were disheartened by the Fed’s suggestion that it will keep raising rates longer than previously thought, which also increased fears of the economy tipping into a recession


💡 Our View: While India will remain the fastest-growing economy, there is no doubt a slowdown compared to earlier. With valuations and markets at their peak and a downward risk to earnings, we remain cautious about equities at this time. We prefer parking ourselves in sectors with significant visibility and companies with strong fundamentals and valuation comfort.

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