D-Street actually looking to benefit from the Evergrande crisis in China


Global equity markets witnessed volatility in the initial part of the week on the back of an emerging debt crisis in China due to a possible default by Evergrande, the second largest property developer in China. However, markets appeared to shrug off this crisis in China and global and Indian markets continued their positive momentum.

BSE Sensex, an index of 30 companies, touched the 60,000 mark for first time ever on Friday. The Evergrande crisis could likely impact the real estate sector in China, but the risk of global contagion seems to be limited as of now. India, on the other hand, can benefit from the Evergrande crisis, as investors may look at India as an alternative to China for investments.

The Indian market maintained its upward journey as Covid cases continued to decline along with a pickup in the pace of vaccinations and strong growth performance from corporate India. The pace of vaccinations has significantly improved with India witnessing more than 25 million jabs being administered in one day, the highest in the world. Almost 66 per cent of India’s adult population is vaccinated with at least the first dose and a quarter of adult population have received both doses.

Higher vaccination levels is increasing consumer confidence, which has led to an increase in mobility. Return of employees to offices and reopening of schools is leading to next leg of normalisation in the economy. FIIs have turned buyers of India equities in September and India is one of the few emerging equities, witnessing positive flows from foreign investors. Indian retail investors are also investing money directly as well as through mutual funds.

Monsoons in India, which were trending below the long-period average, have improved in September and this bodes well for rural India. Kharif (summer crop) sowing is expected to be normal and an increase in water reservoir levels should lead to normal rabi (winter crop) sowing in the forthcoming season.

The Index of Industrial Production (IIP) fell marginally by 0.3 per cent in Jul-21 vs Jul-19. On a lockdown-impacted base, IIP in Jul-21 grew 11.5 per cent YoY, which was in line with consensus estimates. CPI inflation rose 5.3 per cent YoY in Aug-21, but was down 0.3 per cent MoM as food and beverage inflation cooled off. With the CPI inflation remaining within the tolerance band of RBI, we expect monetary policy to remain accommodative with the focus on supporting growth. High frequency economy indicators are now at higher levels than that seen in the pre-COVID times, thereby instilling confidence in the strong economic recovery that is underway.

From here on, the movement of the market would likely be determined by 1) any contagion effect from Evergrande crisis in China 2) Q2FY22 corporate results and 3) commentaries on festive season and rural growth trends. The Indian market will also take cues from timeline and comments on Fed tapering, movement in global stock markets, the risk of a Covid third wave and its possible impact on the economy.

(Shibani Kurian is Senior EVP & Head of Equity Research at Kotak Mahindra Asset Management. Views are her own)


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