Mid-caps join the party

Weekly update — 11 August

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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:

We aren’t far away at 4%