WHY FII'S ARE SELLING ---WELL THEY ARE REBALANCING

People have forgotten how correction looks like.  The price to valuation gap is now going to get adjusted which was bound to happen at one point in time.  Further, we find that some people on the market are taking wrong speculative bets of fearful downfall. Well, we are sorry to say that we need more deep insights as the history of economic growth has got changed due to covid. The historical patterns are all broken and don’t compare with them.  

 The who are thinking that the new class of investors will be witnessing for the 1^st time fall of the markets well don’t know that this new generation of tech-driven investors is more knowledgeable.   

Further in YTD –we find that every month around 10 lakhs new Demat account shave been opened.  Now if the market falls dramatically do you think all these investors will run away from the market well that’s well foolish thinking.  Maybe 20% or 30% of the new 2.45 million Demat accounts opened up in the last 18 months might get away from the market but the rest will stay invested.  Hence these investors are long term investors and they know the underline risk of the equity market.

Please don’t underestimate these new investors. They know what is financial markets, investments and the risk of investing inequities.  Further SEBI has scraped the Margin funding stories and short sell traditional risky tools.  The risk level of the investor is limited to the delivery and long holding of stocks.  

 From March 2020 we find that small caps gave 225% returns followed by Midcaps 170% and large caps 130%. Well, foreign institutional broking houses and FII’s have already stated rebalancing of their assets from equities to other asset classes. They have started playing the music that Indian equity is the market is expensive.  They know that inflation will bring down the 18th-month alpha from equities and it’s time to rebalance the portfolios which they are alarming.

 U.S corporates have already started the issuance of debt to raise capital. On a year-to-date basis up to end-June, total fixed income issuance reached USD6.76 trillion, 19.6% above the corresponding period in 2020. A new record-high of 149 companies have taken advantage of America’s high-yield bond market. The U.S corporate bond market is offering more returns when the valuations of the equity is coming down due to rising inflation and supply chain issues. U.S. pension funds will rebalance this month by moving $5 billion into fixed income and out of equities. As per Wells Fargo U.S Large-cap stocks will be sold off to get the outflow from equities and get into Bond.

It’s being found that in the month of September, 26 new corporate bond issuers entered the high-yield market— the highest on records dating back to 2005. In the meantime, another 13 more companies have also joined the tally since the beginning of October, with the online gaming platform Roblox rumoured to be one of them. This is what leads to equity holding being rebalanced across the globe.

As Free money is getting withdrawn across the globe we find that Demographics will now be reversing in a number of countries savings rates are likely to decline over time, and pension and healthcare systems will suck up resources.

 You will find Gold prices climbing us and allocation to the asset will grow going ahead as inflation across the globe is climbing up. Further currency depreciation games will now begin which gives opportunities to these FII’s to play their cards and make returns as well as rebalance their investments. Interest rates will be rising and hence cross border debt instruments will get in the act now. Yields will speak the story and corporate papers which will be raised will speak the story for investments.

 Supply chain issues, delta issues, slow opening up of manufacturing, raw material shortages and more importantly rising crude prices creates inflation and opens up the gates of other asset class fortune to play its dice.   

Does this all mean the party for equity is over? Well, the party is over for those investors who made quick money from investments in the last 18 months and are now calling themselves fund managers. Well, I am speaking about those clients who now needs to get back to the era of asset allocation and diversification away from equity to other asset class.  

 The GST number for October will be significant up and down be surprised to see the mark of around Rs 1.30 lakhs cr to 1.50 lakhs cr. Please note that we are yet to see a full bound economic opening up hence these GST numbers will climb further and will help the government to overachieve the targeted GST collection for FY-22.

 The risk of reinvestment in Equities will cool down and investors will get significant opportunities for stock-specific opportunities as the broader sectors now get into play.  The Long term macro factors if India is strong enough for Nifty to climb new highs but not the ones we got in the last 18 months neither we will get a very long time frame for the Nifty to climb new highs. 

It's time to get out of small caps and midcaps and invest in Large Midcaps and Large Caps and quality small caps where the same is going to be valued as Midcaps in coming years. It’s time for rebalancing based on ones’ asset allocation, goal and most importantly based on risk profile.   The reinvestment risk and feel of getting missed out are over now and it’s time to act with proper due diligence and not under the ego of “I am my Own Fund Manager”.

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MARKET CORRECTION OR OPPORTUNITY TO REINVESTMENTS

 

You don’t need to crystal gaze the market outlook you just need to connect the fundamentals. The global corporate debt to ratio and interest hike will be a massive trigger for a rebalancing of portfolios.  Rebalancing and Reinvestments are the two keys to successful asset allocation.  Today and in the last 18 months, you did not have any option of reinvestments other than equities. Despite your equity portfolio soaring to new highs you could not do re-balancing of the portfolio. In the coming 9 months, we will not be having any such risks. We will have currency, gold and debt to offer opportunities for investments.  Dollar to Rupee and yen war will give significant opportunity to invest and trade in coming next 9 months starting soon. We throw light on the alternative asset class performance expectation in the coming days where we may not be surprised to see Rupee around 78.

 The S&P 500 and tech-heavy Nasdaq are both up approximately 30% compared to the same period a year ago, and the Dow is up more than 20%. This rally is fuelled by massive inflows of easy money, cut down and restructuring of necessary cost and now with revenge buying and a huge pipeline of demand makes profits soar. The forward PE ratio is going to come to a stop level now since the inflation and interest rate followed with winding up of easy money is going to reverse and change many forward PE ratios.

 Further, as per S&P Global Ratings, corporate debt to the Global GDP is going to swell to 260% by the end of 2021. Global debt rose to a record high of nearly $300 trillion in the second quarter of this year, data from the Institute of International Finance (IIF) shows. Total debt, including government, household, corporate and bank debt, soared $4.8 trillion to $296 trillion at the end of June, $36 trillion above its pre-pandemic levels.

 Well, we have a topping of China type crisis also. This year’s rise in debt levels took the greatest toll on emerging markets, with total debt rising $3.5 trillion in the second quarter to reach nearly $92 trillion. This debt reduction will not happen so easily and with interest rates bring brought up and inflation leads slowdown in consumption are going to pull the lever for the global markets to slow down.

 Food price inflation will now spill over to other segments of society. Food prices increased 40 per cent over the previous 15 months according to the UN’s Food and Agriculture Organization, the biggest increase since the Arab Spring in 2011. Now with the energy crisis and rising prices, the same will soar to new highs.

 Further vaccination drive in different countries will direct the supply chain and also we are still far away to identify how much business and trade have been wiped out due to covid 19 in different countries.  Countries having sufficient leeway to fund slowdown will be better saved and those who do not have are going to create a divergence in currency. Divergence in inflation between countries and currency imbalances and war will begin soon. Equity inflows and outflows will now be influenced through currency direction.

 Apart from these, we will find the U.S to be focusing on service and construction jobs. The unemployment of the U.S economy speaks a different picture when we analyse it in-depth. It’s being found that a major problem for many Americans is the staggering amount of people who have been unemployed for over 27 weeks or longer. Nearly 3 million people have been without a job for over six months. This represents 34.5% of the total unemployed in September. Child care is another issue for the unemployment numbers to rise. This is the prime reason why the infrastructure bill of Biden is so important and it will help to create jobs.

  Global bond markets and particularly the countries that have swelled up their corporate debt levels to unprecedented levels will be giving shocks to everyone. Currency volatility will rule and markets will rebalance the portfolios. The trigger point of bond investments and rebalancing will be the soaring corporate debt to GDP ratio is going to be a buzzer.

 At the same time, Equity will remain a core part of asset allocation and individual country-specific policies and economic regulations will provoke and get investments for the respective GDP. But we should be prepared to witness GDP cut down coming up in coming months across as inflation goes beyond control and bubbles burst like china erupts.  The opportunity of investments in equities and other asset classes is going to be wide open for investors.  You don’t need to chase Bitcoin anymore when other asset classes are going to be attractive. 

India stands to be in a strong position based on cost structure, China +1, demographic advantage and stable government policies. It may not be one-way traffic but it will be a long drive with consolidation.

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MARKETS GET READY FOR 2022...ITS TIME FOR PREPERATION-SERIES 1

 

Well if you are thinking that this equity market will continue just like one-way traffic well you are partially correct and partially wrong.  Nifty will rise to new highs from the present levels but prior to that we have few hurdles to face and we need to prepare our minds for the upcoming opportunities and rebalancing of portfolios.  Time is coming where Active Fund Managers will be in high demand and passive fund players will be in standby mode sector rotation and selective segment movements will begin.   Global financial markets have already started focusing on the debt market and the investors are also rebalancing their equity portfolios.  For example, the Vanguard Ultra-Short Bond ETF (VUSB), which was launched in April and has already amassed $1.7 billion in assets under management.

We will find Inflation-linked debt products and Mutual funds in 2022. Yes, this space will find significant demand-supply as inflations will reach new highs.

This winter is going to be one of the expensive winters for the global economy. We are slowly approaching the end of the era of Free Liquidity Distribution as we are near the end of the calendar year of 2021. Gold will rise as safe heaven and investments into Multi-Asset products and asset allocation products will find significant inflows in this winter.

The global economy is preparing for Tapering and interest rate hike but more than this the efforts and actions of decarburization is going to cost huge. This will drive income inequality which might spill over to generations.

Lack of alternative energies and cut down on coal consumption will spook the energy cost and the same will get reflected in every item across any industry and the same lead to cut down in consumption in coming days.

Global interest rates and India rates will start rising before June 2022 and by 2023 we will see that the Debt category is roaring high.  IPO markets will slow down by June 2022 and the Unicorns will become selective.

The sharp V shape recovery is now going to change and we will witness growth slowing down across the globe in 2022. The same is applicable for India too where we will find GDP and market growths coming cooling off.

The adjusted corporate profits due to covid impact are to face the hurdle of the slowdown of consumption due to rising cost of goods and drawback of freebies provided by the developed economies.  Job creation is still a challenge for many economies and the per capita income is going to decline in 2022. The stimulus helped personal incomes soar in 2020 and early 2021 and this will drop now in 2022 hence the revenge buying and consumption horse will take a slowdown in coming years.

By the beginning of 2022, we will find GDP growth projections will be sliced across the globe and we will witness several rounds of cut down of growth in 2022.

The biggest risk to the investment world till now is the lack of alternatives next to Equities. This segment will now change in 2022 and we will witness before June 2022 the debt segment getting back in shape and asset allocation is getting back to the centre of sage.

Every investor cum fund manager are going to dry down in the coming months and financial advisors will be back in business. The quick gain theory will slow down and asset allocation basics will need to be adopted now. Reinvestment risk will wither out by June 2022.

The rising inflation will wipe out the wage gains and hence even despite having employment gaining in few countries we will still find consumption to decline.  The real sector across the globe will fall down in the coming days as the rate of interest starts rising and WFH becomes distance history.  Further inflation will spook the prices and the end-users will no longer get the gains they enjoyed in the past 18 months.

We will find sector-specific movements in returns and growth. Stock specific actions and movements will get into the game and most importantly Active Fund managers will be back in the game beating the passive funds. Well sorry to disappoint that Passive cannot be your core it was a satellite and will remain satellite only.

Portfolio rebalancing has begun and we will witness significant inflows from the passive index-based funds to active funds in the coming days. By June 2022 we will witness new papers of corporate debt and treasury papers to invest in as corporates will prefer to raise capital from the bond market rather than heading for Equity. We will find Bond ETFs coming back and quality paper baskets coming up.

The government of India should make the corporate bond and debt market more attractive for investment through leeway in taxation. This will help both investors and the government in the coming days.  Well, 2021 will be over in the next two months and we should plan for 2022 as well as 2023.

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