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Inflation remains higher, tightening cycle may last longer than expected; check investment strategy

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By Manish Jain

In the last two months, the Nifty has rallied around 17% and that seems to have alleviated almost all the concerns that the markets had. Inflation, Rural demand, rate hike, slowing earnings growth and commodity prices have all been put behind. From being all blue, we have very quickly gone to all roses. However, the hard truth is that in reality the Nifty is nearly 1.5% up on a CYTD22 basis. This essentially means that all that we have done in the last couple of months is to regain the losses for January – June ’22. A large part of this rally, albeit with improved fundamentals, has been driven by liquidity. The FPIs have come back and they have come back like never before and this, we believe, has been one of the major reasons for the resurgence.

The second reason has been the strong foreign policy stand taken by our government. The swapping of Middle-eastern crude with more inexpensive Russian crude has been instrumental in keeping inflation in control and also saving precious US Dollars. The third thing that stands out is how India has been completely decoupled in the whole global recession scenario. The US & EU slowing down has actually had a bit of silver lining. This has pushed the global crude and commodity prices and also helped bring the FII flow back into the country. Last, but not least, The Indian central bank – RBI, has played a key role in managing the economy. At a time when most central banks have been in a reaction mode, RBI has been proactive in tightening and which has helped in containing the inflation situation.

So, the question is – have we all missed the bus? Is the rally over? What should be the strategy now? The simple answer to the above-mentioned questions is – No. The markets will likely give us more chances to build positions. There are some concerns that continue to linger on. The first one is food inflation, particularly rice, which has been a cause of concern. This could mean that inflation continues to remain higher and that in effect means that the tightening cycle can last longer than expected.

Also read: Adani buy of Holcim’s assets triggers next wave of consolidation

The second concern is the Balance of Payment which has been caused by stagnant exports and rising imports. Dare I say that the danger of getting into a 2012-14 kind of situation now seems very real? This could also be a major cause of worry for the markets. So, the moot point is that markets will give us opportunities to build positions, so rather than lamenting, be watchful and don’t miss the bus a second time coming. However, when you do buy, always remember – Buy quality, buy long term. Stay invested and create wealth. Invest in good & clean companies.

(Manish Jain is a Fund Manager at Coffee Can PMS, Ambit Asset Management. The views expressed in the article are of the author and do not reflect the official position or policy of FinancialExpress.com.)

Nifty 50 rejig: Adani Enterprises replaces Shree Cement; IRCTC, Adani Total Gas, HAL enter Nifty Next 50

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Gautam Adani-led Adani Enterprises will become part of Nifty 50 from Friday, 30 September, in NSE’s upcoming semi-annual index rejig. Adani Enterprises will replace Shree Cement from the 50-stock index. This is the second Adani stock to be included in the Nifty 50 index after Adani Ports and Special Economic Zone. Apart from Nifty 50, changes have been announced in Nifty Next 50, and Nifty IT. Adani group has seven established listed entities, including Adani Green Energy, Adani Power, Adani Total Gas, Adani Transmission, Adani Ports and Special Economic Zone, Adani Wilmar, and Adani Enterprises.

Also read: Rupee hits new lifetime low, nears 82 mark on strong dollar, weak markets; USDINR support at 81

In the last 6 months, Adani Enterprises’ share price is up 86.5 per cent, on the other hand, Shree Cements stock is down 10 per cent and is trading at a price of Rs 20,963.5 per share. “We at Edelweiss Alternative & Quantitative Research have analysed the flow impact led by rebalance and recapping of stocks in key indices (Nifty 50 , Nifty Bank and CPSE Index) and inclusion/exclusion in Nifty Next 50 and Nifty IT,” the report said. 

Also read: Reliance, HCL Tech, Dish TV, Torrent Pharma, Birla Corporation, IDBI Bank, Adani Group stocks in focus

IRCTC, Adani Total Gas, others enter Nifty Next 50

Nifty Next 50 index will see the entry of marquee names such as Bharat Electronics, Shree Cements, Adani Total Gas, Hindustan Aeronautics (HAL), IRCTC, Mphasis, and Motherson Sumi Wiring India. Moving out of the junior Nifty index will be Adani Enterprises, Dominos operator Jubilant FoodWorks, MindTree, Lupin, Punjab National Bank (PNB), SAIL, and Zydus Lifesciences.

Persistent Systems replaces Mindtree in Nifty IT

For the Nifty IT index, Edelweiss noted that Persistent Systems’ stock will enter the index replacing Mindtree. Inflows towards Persistent Systems (PSYS) will be around $16 million, and outflows from Mindtree would be around $23 million. However, no changes to the Nifty Bank index and Nifty CPSE have been made.