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Saturday, January 28, 2023

Moneycontrol Pro Panorama | Is a geopolitical thaw in the making? Markets are not holding their breath

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Dear Reader, 

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. 

One interpretation of US President Joe Biden’s statement that he is willing to speak to Russian President Vladimir Putin about ending the Ukraine war is that it’s an opening. It does come attached with the condition that Putin shows a willingness to end the war before the talks, but it offers an opportunity for Putin to respond. This is as close as it may come to the US making a first move towards peace. Another interpretation, of course, is that it was an off-the-cuff remark and has no real value.

Markets would, of course, be ecstatic if talks were to happen, but are not attaching much importance to it. They are more focused on the more tangible warmth flowing from the US Fed, as we wrote in yesterday’s edition. They will now be hoping that US employment data due later today support expectations of a tapering of the Fed’s tightening. Unusual strength in the labour market may compel Fed officials to look through the recent softness in inflation and other economic data.

There appears to be a general softening of indices in Asia and India. US futures too seem to have turned a bit weak. This sort of flip-flop in the market is not uncommon when sentiment shifts occur. And giving up some gains after days of making highs is no big deal. If you are seeking to make sense of what lies ahead, then we have some analytical pieces lined up for your reading pleasure.

Our research team’s Sachin Pal has looked at the macro picture, at different markets and technical indicators, to make a point about being cautious about the rally. He’s concerned by the overall market breadth being weak with limited participation from the mid and small-cap universe. The historical evidence of soft landings also does not support the confidence that a section of the market is having on this occasion. He writes: “Although the current market momentum favours the bulls, we advise investors to remain cognizant of prevailing risks related to macroeconomic environment and focus on reasonably strong businesses…” As to what they are, click here to read.

Our regular columnist Ananya Roy delves into the issue of what investors should do in this period. She traces back why equities have been in a TINA rally (There Is No Alternative) so far and then the scenarios that lie ahead. She believes that a realistic scenario in which equity investors will be rewarded is one where growth takes over from TINA. The spectre of a recession is a cause for concern and she advises investors to not be complacent. Do read to know why.

A new expectation could be added to the mix if the US does manage to get Russia to the negotiating table. While a compromise may not be so simple, it will be the most concrete signal so far that an end to the war is in sight. While the world economy will sigh in relief, it will also lower commodity—especially essential ones such as foodgrain and oilseeds—prices and put an end to the misery of Ukrainians (and even ordinary Russians) suffering from the war’s adverse effects. That’s why one can hope Biden’s remark sparks a change and brings good news in 2023. Markets, of course, will move on to the next big thing to obsess over when that happens.

Investing insights from our research team

Valuation has got the mojo for this Weekly Tactical Pick

Auto sales: Inventory correction a speed breaker for volumes

Jyothy Labs: Resilient performance despite headwinds

What else are we reading?

Digital rupee — A long way to go in a land where cash is the king

With its lenders back in courts, Jet’s future looks cloudy

Directors’ disqualification on default is a remedy with severe side-effects

Is honesty a teachable skill?

Kirit Parikh committee recommendations are too idealistic to be implemented

Gold still adds a little lustre to a very well-diversified portfolio (republished from the FT)

China Protests | Xi Jinping takes one step back to prepare for two steps forward later

Protests across China reflect a governing crisis — that’s bad news for Xi Jinping

Budget 2023: India must sustain its growth momentum despite stiff global challenges

The US and the UK should be welcoming talent, not driving it away

Technical Picks: AWLINOX LeisureCastor seedsTejas Network and Exide Industries (These are published every trading day before markets open and can be read on the app).

Ravi AnanthanarayananMoneycontrol Pro





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