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Economy: GST collection surges to INR 1.3 trillion

A. Gross revenue collections of Goods and Services Tax (GST) in October (for sales in September) rose 23.7 per cent year-on-year to INR 1.3 trillion

B. This is the second-highest revenue collection under GST ever since its rollout in July 2017

C. Pick up in GST collection signifies pickup in economic activity and several compliance measures taken by tax authorities to curb evasion.

Equities: Q2FY22 Interim Earnings review

A. Nifty profits for the 34 companies that have posted their results have grown 22% YoY.

B. Nifty EPS for FY22E/FY23E remains largely unchanged and saw a minor tweak to INR 731/INR873 (from INR 730/874)

C. The FY22 EPS upgrade for BPCL, Titan, IT companies and private banks was negated by downgrades for Asian Paints, autos and insurance companies

Equity Market CY Performance, Interim Corrections are a Normal

Out of 41 years, while markets always had an interim decline, only in 9 years did the market end the year with negative returns. In other words, for 32 out of 41 yrs, the markets ended in positive – despite the temporary decline in between. 10-20% Temporary drawdown is almost a given every year.

Outlook:

The equity market rally over the last year has been driven predominantly by corporate earnings growth. After a strong FY21, FY22 so far has been strong too. The 2QFY22 earnings season has thus far been above estimates, benefitting from a) strong growth in the Technology sector, b) steady recovery in loan growth as well as recovery and an upgrade in the asset quality of most private sector banks, c) higher commodity prices and volume growth in the Energy and Metals sectors, and d) the economic unlock driving growth in Consumer and Retail.

Multiyear low interest rates, normal monsoon benefiting rural economy and support from global recovery are likely to provide cushion to the valuation as well as bodes well for the economic recovery. Over the next few years, if nominal GDP grows at an average of 10 per cent, then earnings growth could be between 12-15% and market movement is likely to be in line with such earnings growth. The key risks Continue to be any extension of lockdowns, resulting in slower economic recovery.

Mid and Small cap are no longer cheap post the rally in FY21. However, If real GDP growth trajectory sustains post FY22, then earnings growth in Mid & Small-cap space is likely to improve.Hence, we recommend to invest 50% in lump sum and 50% in a staggered manner over the next 3-6 months in Multicap strategies and select Mid & Small Cap strategies (MFs, PMS, AIF).

Fixed Income: RBI Stance: Aims to balance between Liquidity, Growth & Inflation while giving signals for normalization

-  RBI continues to keep policy rates unchanged and maintain accommodative stance

- To focus on recovery of durable growth while being cognizant of inflationary risks

- In the process of gradual normalization, the RBI is likely to continue to reduce excess liquidity, followed by increase in reverse repo rate, and proceeding towards hike in Repo Rate expected in Cy22.

Summary

India's Forex Reserves at USD 640.8bn

- India's forex reserves decreased by USD 1.145 billion to USD 640.874 billion for the week ended on November 5 on a fall in currency and gold assets.

- Value of the gold reserves decreased by USD 234 million to USD 38.778 billion in the reporting week, the data showed.

- The special drawing rights (SDRs) with the International Monetary Fund (IMF) decreased by USD 17 million to USD 19.287 billion.

- The country's reserve position with the IMF decreased by USD 14 million to USD 5.228 billion in the reporting week, the data showed.

Gold

Gold has been in a consolidation mode from last Diwali to this Diwali, and in the past few months have witnessed some choppiness amidst volatility in U.S. Dollar and bond yields. Gold being a non-yielding asset has always reacted first in case of any change in interest rate and hence even now with so much panic in market regarding tapering and policy tightening metal prices have held its ground on the back of low rates.

Gold Outlook

It will be absolutely important to track Fed's actions and comments and its impact on the U.S. Dollar and yields. Any comments regarding the tapering actions, interest rates, inflation expectations will be important. Economic data from the U.S. like, Industrial growth, Retail Sales and especially the Jobs growth will be crucial to watch. Along with that, keeping an eye on the updates regarding the spread of Delta variant situation and comments shared between U.S. and China will be equally important. We continue to maintain our positive bias and Gold price is expected to reach a level of $2000 on COMEX; and on domestic bourses levels of 52,000-53000 could be witnessed over a period of next 12 months.

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