15 May 2023
This article outlines our in-depth analysis of economic indicators for Indian and global equities, with a specific focus on metals, currency, interest rates, IT, and the old economy (referring to traditional industries such as utilities, manufacturing, and energy/oil/gas companies). It also discusses the performance of emerging markets and the projected impact of inflation from 2024 to 2027.
COPPER'S IMPACT ON THE STOCK MARKET:
We anticipate a shift in copper's status from a base metal to a precious metal, similar to gold. This transformation is expected to occur between September and October 2023, extending until 2026. Generally, industrial commodities, including metals, are predicted to perform well during this period. However, they may contribute to inflationary effects on global yields, particularly in 10-year bonds. Typically, metal stocks should exhibit positive performance starting August to September, extending for the subsequent 2-3 years.
CURRENCY MARKET:
Currently the maximum projected upside for the USD to INR exchange rate is around Rs. 84-85 per dollar. In the coming years, we foresee notable appreciation and remarkable performance of the Indian rupee. It is highly likely that the value of the rupee will reach at least Rs. 68 per US dollar within the next 2-3 years. This development will have a positive impact on the manufacturing sector, particularly in capital goods, power, infrastructure, and metals.
INTEREST RATES:
Concerns regarding hyperinflation are expected to persist between 2024 and 2027, leading to interest rate hikes by countries. We anticipate the 10-year Indian bond yield to rise from September to October, eventually surpassing double digits in 2027. Initially, the increase in interest rates will support the bullish trend in certain sectors mentioned in the article. However, in the later stage of the bull market (2026-27), the negative impacts of very high interest rates are anticipated.
IT SECTOR:
Due to the expected strong performance of the Indian currency over the next 2-3 years, the IT industry in India is likely to experience an initial crash followed by underperformance compared to the old economic sectors, including the manufacturing industry.
MANUFACTURING & OLD ECONOMY STOCKS:
Manufacturing and old economy stocks are expected to perform exceptionally well across sectors such as metals, capital goods, power, infrastructure, and public sector enterprises (PSU/PSE). Emerging markets like India and China are predicted to outperform developed countries during the same period.
Conclusion:
Over the next 12 weeks, global turmoil may have an adverse effect on commodity and equity markets. However, this downward trend should be seen as an opportunity to invest funds.
The period from 2024 to 2027 could present great investment opportunities in India.
Manufacturing and capital-intensive sectors are expected to perform exceptionally well.
There will likely be exponential growth in GDP and per capita income, attracting significant foreign investments to India.
Our Strategy:
1. Equities:
Buy any 5-10% dips in the market
Buy Cyclical Sectors: Metals, Capital Goods, Power, Infrastructure, and Public Sector Enterprises (PSU/PSE)
Exit Defensive Sectors: IT, FMCG, Pharma
2. Bonds/Debt:
Hold Long Term Bonds until September - October 2023, when Interest Rates should roughly bottom out
Then move to Shorter Term Bonds or Equities
CFP Panna Bhandari
CA Sharad Daga