ABC Portfolio - Nov '22 update

Performance & Portfolio updates - Nov '22

Performance

Nov’22 saw a positive trend across global equity and bond markets as the USD weakened across currencies and bond yields cooled off. Expectations of the FED reducing the intensity of hikes as economies slow down drove this move in financial markets. Equity markets like the Nasdaq, China & Taiwan which bore the brunt of the global sell-off, saw the sharpest up-moves in November.

The Indian equity markets finally hit a new high in INR terms after spending a year of consolidation. The up-move in India was relatively muted in Nov as investors chased 2022’s weakest markets. PSU banks, metals and IT were the strongest sectors, while pharma, auto and durables were laggards.

Developments in trends we invest into in the ABC Portfolio

Manufacturing ecosystem – Production led incentives (PLI) from the Govt. are in the works for several sectors including electronics, telecom equipment, specialty steels, shipping containers etc. Export restrictions on steel and iron ore and windfall taxes on refined products were removed signaling a cooling of inflationary forces and thawing of geopolitical pressures.

Organized agri-business – 2022 has been a challenging year in the global fertilizer market as Russian & Ukrainian supplies were disrupted. India’s was able to procure supplies from Russia making the latter its largest supplier, but the subsidy bill was high. The govt. implemented 'one nation, one fertilizer’ to reduce logistics costs. It re-started 5 urea plants which can add 20% to domestic capacity and is pushing nano-fertilizers to reduce imports.

Supporting infrastructure – The Govt has initiated the divestment process for Concor and global and Indian firms like Maersk, Adani, JSW and Essar ports have shown interest. Incentives are being planned in the shipbuilding sector to reduce dependencies on foreign carriers. LNG storage facilities maybe setup at major ports to make LNG the preferred fuel for ships.

National Champions – The windfall taxes on crude and refined products were revised downwards as inflation subsided. This will increase profitability of the PSU energy companies and allow a continuation of the investment agenda.

Digital platforms –Following the pilot test of the RBI’s wholesale CBDC, the tests for retail CBDCs were initiated. Central bank issued digital money will link the digital and physical worlds and enable a digitized economy.

Summary & Outlook

The resiliency of Indian equity, bond and FX markets over the past year has been remarkable and maybe signaling an expectation of structural changes for India in this decade.

Incentivizing manufacturing in turn spurs industrial & agricultural growth and infra, logistics & urban developments, catalyzing growth in per capita income at a mass level. This playbook has been followed since the industrial revolution and Indian policy is focused on the same. The core themes in the ABC Portfolio are in sync with the overall India development process.