A striking trend in the post pandemic period is the rise of interest in equity investing from retail investors. On October 25, the National stock exchange announced that the unique registered investors on the NSE crossed 50-million count. While the journey from 30 million registered investors to 40 million took about 15 months, the next 10 million investor registrations took less than seven months. The MF industry now has a total of nearly 112 million folios. The MF industry has added nearly 9 million folios in first 6 months of FY22. This is a significant acceleration compared to FY21 when the MF industry added over 8 million folios. The SIP AUM for Sept 2021 stands at Rs. 5,44,975.96 crore, nearly a third of total Retail AUM of Rs. 17.72 lakh crore. New SIPs registered during Sept 2021 at a record 2.7 million registrations, the highest ever. The monthly SIP value has now climbed above the Rs. 10,000 crore mark.

The efforts to grow the participation of individual investors in equities are now bearing fruit. And the Mutual fund industry is at the vanguard of this shift of savings from real estate, gold and bank deposits to investment products. Relative to the size of opportunity however there is still much more distance to be covered. Product innovation, investor education and technology led onboarding of new investors hold the key to continued growth.
Multiple indicators suggest that the economic growth is recovering quite swiftly from the second covid wave. A process of transition and transformation is underway in the economy; this has resulted in a multi-speed economy. Not every segment is moving at the same pace. Certain segments of the economy are seeing gains post a period of change, while others are experiencing setbacks and challenges.

The Reserve Bank of India has retained its growth forecast at 9.5% for FY22. The rate of growth in the fourth quarter of FY22 is forecast to be in line with the pre-pandemic growth rates. There is no reason for policy settings to be in emergency mode with growth returning to trend and we should expect gradual normalization. Corporate profits have grown strongly over the comparable period of FY20 though GDP is expected to recover to its FY20 level only by end FY22. The union government’s fiscal is also in its best health relative to the trend of previous years. In September end the central deficit stood at 35% of the FY target as compared to the 10-year September end average of 74% of FY target. This gives the government the wherewithal to deal with the risks inherent in a multi-speed economy with finely targeted capital and revenue spending.

The buoyancy in the equity markets has led to elevated valuations and this could prove to be a drag on returns. In fixed income market the challenge is to deal with the gradual normalization of policy in the coming months. Rather than try to pick turning points we would recommend staying disciplined in term of asset allocation and systematic investing.
May the festival of lights brighten your homes this Diwali.

Equity Market
October 2021 witnessed domestic stock markets move in tandem with Asian markets marked by selling as DIIs turned net sellers for the first time since March 2021. Expensive valuations which was of some concern for some time now was a key factor in the sell-off this month. Large cap indices S&P BSE Sensex and Nifty 50 ended flat, inching higher by 0.31% and 0.30% respectively, while S&P BSE Mid-Cap and S&P BSE Small-Cap rose 0.10% and fell by 0.35% respectively.
On the BSE sectorial front, S&P BSE Auto (up 6.2%), S&P BSE Consumerdurables (4.6%) and S&P BSE Bankex (4.5%) were the gainers. While S&P BSE FMCG (-5.8%), S&P BSE Healthcare (-4.1%) and S&P BSE Realty (-2.9%) were the losers.

Source for numbers: BSE and NSE and leading business dailies.(October 2021)

Debt Market
India's retail inflation (CPI) eased to 4.35% in September 2021 on account of moderation in food prices. August 2021 (5.30%) had seen CPI drop to a four-month low. Food inflation in September 2021 dropped to 0.68%, from 3.11% in the previous month.

Wholesale price-based inflation (WPI) moderated to 10.66% in September 2021, due to easing of food prices, offsetting the spike in crude petroleum prices. WPI increased in September 2021 mainly due to rise in prices of non-food articles, food products, mineral oils, basic metals, crude petroleum & natural gas, chemicals and chemical products, among others.

India's industrial output (IIP) in August 2021 expanded by 0.4% from the previous month, owing to a low base last year, when IIP was -7.6% in August 2020. Manufacturing which accounts for 77.6% of IIP recorded 9.7% growth with gains in mining (up 23.6%) and power generation (16%). Over April-August 2021, IIP improved 28.6%, against 25% contraction in the same period last year.

GST collections in September 2021 rose to a five-month high of Rs 1,17,010 crores, up 22.5% over same period last year. Revenue growth has slowed month-on-month with the waning of the low base effect. Yet, average monthly GST collections in the second quarter this year (Rs 1.15 lakh crores) improved 5% over the first quarter (Rs 1.10 lakh crore). Pick up in monthly collections is a pointer towards economic revival and better compliance.

Merchandise trade deficit recorded a high of USD22.9bn in September 2021, up sharply from USD3bn in September 2020 and USD11.7bn in September 2019, owing to a surge in imports. Exports jumped 21.4% to USD33.44bn, thanks to rise in exports of gems and jewellery, engineering goods and petroleum products. Imports rose by over 84% (USD56.4bn), owing to a rise in both price and demand for crude oil, as also demand for gold and electronic goods.

Step up in vaccination, decline in new cases/mortality rates are major positives combined with the rise in consumption demand. Revival in manufacturing and services, which are underway, are criticalfor a rebound to pre-Covid levels. Concern with regards high valuations and lagging fundamentals remain, which explains the recent sell-off.

Source for numbers: Leading business dailies (October 2021)