Mid-caps join the party
Weekly update — 11 August
Markets last week
Significant gains last week — NIFTY and Gold were up 1.2% and 4.3% respectively. Even NIFTY Midcap 150 was up 4.1%, indicating a broad market upswing. Last week’s RBI announcement was the primary driver— interest rates will remain low.
While the broad market has rallied, inflows to equity mutual funds have dwindled — July marked the first month of negative flows. During this month, the NIFTY rallied 6%, helped by foreign institutional investors.
Jobs in the US are a mixed bag
The US announced 1.8 million new jobs in July, with a large proportion across hospitality, leisure, restaurants and recreation — unemployment is down to 10.2%, but this is still 13 million jobs away from February’s levels
A Cornell study revealed that 3 out of 5 workers who went back to jobs have either been let go again or told they may be laid off soon—hints of a second-wave in the works, as demand is still low
The services sector in India contracted for the fifth month in a row — domestic and foreign demand are both down with no signs of reversal
No changes to demand
Consumer confidence in July is at an all-time low, according to RBI’s Consumer Confidence Survey — all five indicators were down, compared to last month
Bad debt concerns loom
The RBI also announced that there will be no extension to the loan moratorium period, but provided a one-time loan restructuring option —the RBI has already warned of a spike in NPAs over the rest of the year
Allocation changes
No changes to allocations this week. Our note on the US market should be out later this month.
A few articles caught our attention last week, on a growing disconnect between the underlying economy and the stock market. Some of the comments include:
Any market activity without supporting fundamentals will not sustain.
— C. J. George, CEO, Geojit Financial Services
…the domestic equity market seems to have ignored this ground reality, and continued to rise.
— B Gopkumar, CEO, Axis Securities
Market mood notwithstanding, demand aggregates appear challenging and that makes us cautious on the market
— Aditya Narain, Edelweiss
We do echo the same concern. The industry has acknowledged that it is a rally driven by a combination of central bank measures and a large (or irrational) risk appetite.
Asset allocation, with sufficient emergency corpus, is a simple but the right answer. Extreme measures — such as moving to FDs, cash or real estate — need to be avoided.
Some food for thought from deposits in the US market:
