10/03/2022
What to expect in Markets...... When expecting war/peace in world!!!
Ukraine President Zelensky has opened the door for negotiations by saying he is no longer pressing for NATO membership, one of Russia’s stated reasons for its invasion. Zelensky is ready for a diplomatic solution to the hostilities although Ukraine is not ready to cede any territory (Crimea and the two rebel regions of Donetsk and Lugansk), which is amongst Putin’s asks. With Russia’s and Ukraine’s foreign ministers planning to meet in Turkey, markets are looking for a thawing of positions.
* In response, global stocks staged a sharp rebound with European equities notching the biggest rally since the pandemic bottom in March 2020 (Germany’s DAX index up 8% and French CAC index up 7%) and U.S. indices up 3 – 3.5%. VIX also cooled off to 32 levels.
* Gold declined 4% to $1,975. Treasuries dropped and the US 10 yr yield rose to 1.94%. If the war does de-escalate, he said, investors will refocus their attention on inflation data and central banking moves
* Despite the correction, Indian equity valuations remain above pre-pandemic levels on headline. However, a resolution of the Ukraine-Russia conflict driving oil / commodities lower should lead to a short Indian relief rally.
* Indian Banks have appeared attractive on growth and valuations for a while. While these were outperforming the market since December (the reopening trade), the breakout of the Ukraine crisis has caused the sector to fall sharply (underperforming the market/EM banks). This may be a reflection of macro risks, ownership or large FII selling, but sets up the sector for a rebound. Also, the hope of a cyclical recovery is contingent on better credit growth.
* India, along with other Emerging Markets, has been seeing strong FPI outflows. FPI activity was crucial to India's macro when FPIs were the primary source of current account funding. This has changed materially over the past few years with foreign direct investment (FDI) meaningfully outpacing FPIs. FPIs appear to matter less than before as Domestic flows continue to be strong. In Feb, Net Equity inflow (ex-Arb) was Rs 29,000 Cr which includes SIP inflow of Rs 11,440 Cr.
