As per a report by Emkay Wealth Management titled 'Navigator', Indian economy is resilient and has shown strength despite weakness across the globe. The same can be seen in the equity and currency markets, the correction in the Indian benchmark indices and INR has been quite low compared to the other EM peers. On a closer look at the selling by overseas investors closely, it can be seen that much of it is in the large cap space and not in the mid cap or small cap space. The market cap preferences may be viewed or modified accordingly. Any corrective downward movements should be utilized as opportunities to invest for the long term portfolio.
Volatility in the West, high energy price a challenge to growth
The international market is witnessing heightened volatility as the economies battle inflation and a high cost of living. In addition to this Europe may be in for difficult times due to the issues that are likely to crop up in connection with oil and gas supplies due to the East European situation. While this may not be positive for the exports business, those sectors or companies which may have business exposure to the external sector may be affected due to the developments. In the immediate term this is a concern that needs to be diligent about.
India better off than its peers
India's latest GDP data reflect a resilient and robust economy compared to any of the comparable economies in the emerging markets space. While the selling by overseas investors has been there in all the emerging markets, the extent to which the currency depreciated is also comparatively less in the case of the domestic economy.
The level of economic activity is better with one of the simple signs of the level of activity moving up. However, a significant challenge for the markets in the immediate is the dwindling liquidity and the rising rates. This policy is to contain the inflationary pressures, which may steal the economy of its efficiency and impede growth by adversely affecting consumption demand. Rising rates result in higher cost of funds and may be a drag on companies which have a huge outlay on capital expenditure.
At the start of credit off take cycle
The last recorded credit growth was 18%. This quite healthy given the fact that India is witnessing an uptick after half a decade of slow credit growth. The country will be quickly moving into the festival season and it would also help promote demand and consumption, and discretionary consumption is an area that may be able to perform better. Consumption in the fashion and apparels sector too may look good with better earnings prospects.
The manufacturing sector is expected to perform well in the light of the spends by the companies and the various initiatives by the government like PLI, and also due to the opportunities presented by China pus one, and the key beneficiaries are likely to be autos, auto ancillaries, engineering companies, and specialty chemicals. Not only domestic growth but also some amount of exports growth would help manufacturing. This is a time to be focusing on earnings quality, businesses that have strong balance sheets, leadership position in the respective business and demonstrated & persistent business growth. Such companies will have greater stability and quality even in the face of adverse conditions.