Greetings from Team Carnelian!
Wishing you and your family a Happy Diwali and Prosperous New Year. May this festival of light bring loads of happiness, peace and prosperity to you and your family.
Turn of Samvat is always a good time to reflect upon how the last year has gone, key learnings and what to look forward in the year coming ahead.
Samvat 2077 started amidst heightened fear and very low expectation. A year on, the fear factor has receded and expectations are very high. Generally, there is inverse relationship between risk and fear, hence one has to be watchful when fear factor (perception of risk) goes down.
At the onset of last Samvat we were grappling with extreme pessimism with questions like how long the lockdown will last, what will be its impact, when will we have vaccines and many more questions revolving around the same. Surely it was once a century crisis!
History has consistently taught us that bull markets are always borne on back of some crisis, as crisis usually brings some natural or forced structural shifts. During crisis we noticed 2 clear trends emerging:
Each business wanted digital solution to sustain its operations amidst lockdown
World recognised overdependence on China and wanted alternative to China
Fortunately, India is uniquely & competitively positioned to offer solutions to both of the global needs mentioned above.
Noticing above we launched our Shift Product during last pandemic with focus on two broad themes: IT and Manufacturing. In hindsight we were positively surprised by the pace of shift resulting in creation of significant wealth over last 1 year.
We saw spur in demand across IT services so much so that plethora of opportunities in the sector lead to high attrition rates. Within a span of 6 months there is a massive shift from fear of job losses to shortage of talent.😊 Similarly, we are seeing greater traction for Indian Manufacturing companies on account of China+1 strategy added with India’s focus on becoming Atma Nirbhar. While index has gained 52%, IT index has gained 70% and capital goods 86%.
Government has been very prompt all throughout the pandemic to support economy, we have seen introduction of PLI schemes to boost capex and also implementation seeing the light of the day, unabated government spending, introduction of schemes like Gati Shakti, Ayushman Bharat etc.
Even RBI has been very accommodative all throughout with no changes in the rates. India has also successfully executed 100 crore vaccinations at a record pace, which helped bringing back the economy to normalcy.
What lies ahead….(Samvat 2078)
While previous Samvat was one of the best periods for global and Indian equity markets, the journey to the next Samvat is likely to face plenty of speed bumps. Few of the things one should watch out are:
High commodity prices, supply chain bottlenecks
Likely increase in global interest rates & tapering of excess liquidity from the system
Valuation de-rating in cases where current rally is driven more by hope than facts
Disruption risk will certainly be more visible for select sectors resulting in terminal value risk
Reverse shift from organised to unorganised in sectors with low entry barriers
Huge Capital raise lined up in IPOs taking away liquidity from markets
There has been a stupendous rise in the prices of commodities across the board, logistical challenges, shortages etc. which has kind of taken the raw material prices and other costs through the roof – while we believe this is not sustainable and industry players have already started taking price hikes. This may dampen the margins for 1-2 quarters; however we believe margins will get normalised in the coming quarters.
Higher crude oil prices will impact India’s trade balances, however it’s tolerance level for hi