Vijay Kumar Gaba

FY23 was mostly a year of normalization. After two years of disruptions, uncertainty, and volatility, both the markets and the economy regained a semblance of normalcy in terms of the level of activity, trajectory of growth, direction, and future outlook.

Building on the momentum regained in FY23, the Indian economy and the markets made a steady move forward in the financial year FY24. The resilience of growth has been surprising, given the tighter money conditions and challenging external environment.

The global economy was also stable despite geopolitical and climate challenges. Global markets accordingly performed well. The sentiments remained mostly positive and supportive of risk.

The following are some of the highlights of the performance during FY24.

Equity Markets

Indian equity market was amongst the best-performing global markets. The benchmark Nifty yielded a return of ~29% (27% in USD terms), which was in line with the US markets (S&P500 +28%), but much higher than Europe (Stoxx600 +12%; DAX +18%).

Asian markets were mixed. Japanese equities were the top global performers (Nikkei255 +44%); South Korea (KOSPI +17%) did reasonably well; while China (Shanghai Composite -7%), Singapore (-14%) and Hong Kong (Hang Seng -19%) ended the year with major losses.

Broader markets at the center stage

The primary action was away from the benchmark Nifty. Broader markets sharply outperformed the benchmark in one of their best years in the past decade. Nifty Smallcap 100 (+70%) and Nifty Midcap 100 (+60%) led the market gains.

The overall market cap was higher by 50% yoy against Nifty50 gaining 29% (81% of total market cap) and Nifty500 gaining 39% (91% of total market cap). Some part of the gap could be explained by new listings, but most of this is attributable to the massive outperformance of smallcap stocks.

Sector-wise, Realty, PSU Banks, Auto, Energy, Infra, Pharma and Metal stocks were top outperformers. Financials (ex PSU Banks), FMCG, IT Services were notable underperformers. Micro-sector-wise, renewable energy stocks were outstanding while chemicals were the worst performers.

Nifty consistent performer; broader markets more volatile

The benchmark Nifty50 yielded positive month-on-month returns for nine out of twelve months in FY24. However, the market breadth was negative in five out of twelve months implying much higher volatility in the broader markets.

Institutional flows positive, Nifty-Flow correlation breaks in 4QFY24

Institutional flows were materially positive for FY24. Net domestic and foreign flows in the secondary equity market amounted to Rs3609bn. Foreign Portfolio Investors (FPIs) were net buyers of Rs1510bn while domestic institutions pumped in Rs2099bn. FPIs were net sellers in four out of twelve months. The nifty-institutional flow correlation however completely broke down in 4QFY24 when Nifty gained less than 3% despite Rs1042bn of net institutional flows.

Debt and Currency Markets

Indian debt and currency markets were mostly stable during FY24, showing little volatility. RBI did not make any changes to the policy rates.

The benchmark 10-year treasury bond yields eased to 7.05% from 7.3% a year earlier. USDINR weakened 1.8% to 83.37 from 81.87 a year earlier. Lending and term deposit rates were higher by up to 50bps. The yield curve shifted lower and flattened completely.

The RBI continued with its “withdrawal of accommodation” policy stance. The liquidity position therefore remained tight for most of the year. The credit growth outstripped the deposit growth. Overnight and call money rates were accordingly higher by 70-90bps.

Economic conditions

Overall GDP growth was consistent and strong for the first three-quarters of FY24. Beating all forecasts and consensus estimates, FY24 GDP is poised to show a growth of over 7% yoy. FY25 GDP growth estimates have accordingly been upgraded.

·         CPI Inflation mostly remained within the RBI’s tolerance band of 4-6% (except for a short spike in 1QFY24). Core inflation eased below 4% in 4QFY24.

·         Real rates have mostly remained in positive territory during FY24.

·         Private consumption, household savings, and government consumption expenditure were some of the distinct areas of slowdown.

·         Project awarding activity witnessed a marked slowdown in 2HFY24.

·         Rural markets gave mixed signals of demand recovery. For example, farm tractor sales declined again in 2HFY24, while 2w-3w sales staged some recovery. FMCG companies’ commentary remained mostly cautious about the consumption demand recovery in rural areas.

·         External conditions were broadly good. The current account balance was manageable at 1.2% of GDP during 9MFY24, supported mostly by services and remittances. Merchandise trade balance remained negative.

·         Electronics (6.5% of total exports) and Pharmaceutical (6.3% of total exports) registered good growth, while traditional petroleum products, gems and jewelry, and textiles recorded materially negative growth during 9MFY24.

·         Net FDI flows continued to decline for the third consecutive year.

Commodities

FY24 was a mixed year for commodities. Precious metals (Gold +15%) and crude oil (Brent 10%) recorded decent gains, while industrial metals (Nickel -30%, Zinc -17%, Steel -19%), natural gas (-21%), coal (-28%), and agri commodities (Wheat -19%, Soy -21%) ended the year with strong losses.

Crypto shine

Cryptocurrencies like Bitcoin staged a massive recovery during FY24, ending the year at all-time high levels. The newest asset category gained a wider acceptance during the year from market participants and regulators.

The 2023^rd year of the Christ is ending on a rather buoyant note for the Indian financial markets. The equity markets are at all-time high levels. Bond markets are now looking up, after challenging 18 months. Cryptocurrencies have yielded good returns. Gold has also been positive. Macroeconomic conditions have become supportive of the markets – prices are under control, currency stable, twin deficits under control, no overhang of government borrowing crowding out private capex, manufacturing growth is accelerating as capacity utilizations improve and PLI payments begin to flow in, and overall growth is the best amongst the global peer. The foreign flows have improved, while the overall domestic flows have remained strong. Corporate earnings remained buoyant led by easing raw material prices, improved domestic demand environment, deleveraged balance sheets, and materially improved asset quality for the lenders.

Stock markets – Capex theme finally catches up

The Benchmark Nifty50 has gained ~18.5% YTD2023. But the heightened action was witnessed in the broader markets where Nifty smallcap100 gained ~53% and Nifty Midcap100 gained ~45%, sharply outperforming the benchmark. The overall market capitalization of NSE increased ~26.6% to Rs355 trillion (US$4.28trn).

The investment theme - capital goods, infrastructure, construction, and manufacturing were the top themes in 2023. Defense, clean energy, Real Estate, power, roads, railways, etc. - did exceedingly well. The materials (metals, cement, etc.); large private banks, services, and consumer finance were relative underperformers.

·         Realty, Defense & Railways PSEs, PSU lenders, Power, and Clean Energy were the top themes for 2023.

·         International equity funds and Gold ETFs were the worst-performing fund categories; smallcap funds were the remarkable outperformers.

·         Most large cap funds managed to beat the benchmark Nifty50 by a decent margin.

·         The valuation gap between broader markets and Nifty widened to 2018 levels when a sharp correction was witnessed in broader markets.

·         Long-term (5yr rolling CAGR) Nifty returns are in double-digit for the unprecedented fourth year.

Earnings growth – all set for a sustained up move

Nifty EPS is all set to record a fourth consecutive year of double-digit growth in FY24. The earnings in the five years FY20-FY24e have grown at 14.4% CAGR. The outlook for FY25 and FY26 is also promising with consensus estimates suggesting over 15% CAGR over FY25-FY26.

Flows positive – Quality of domestic flows remain good

The overall institutional flows in the secondary markets remained positive consistently. Over all, FPIs pumped in over Rs 1.12 trillion (YTD 2023) in Indian equities; while domestic institutions were buyer to the tune of Rs1.74trn. The best part was the quality of flows. The entire Rs1.7trn of domestic new flows was through SIP route and hence sustainable and stable.

Debt and currency – bonds stable amidst global turmoil; INR marginally lower

Indian debt and currency markets were perhaps the most stable among the global emerging market and developed market peers. While the sovereign ratings of countries like the US and China witnessed adverse rating action, India’s sovereign rating remained stable with a case for upgrade. The benchmark yields ended lower for the year despite tighter liquidity and higher policy rates. During the year INR was down ~5% against USD and ~9% against EUR.

As the yields were mostly stable and the yield curve flattened, duration did not affect the bond returns. Most debt funds (including Liquid) on average yielded 6-6.5% return.

Commodities – deflation sets in

The year 2023 has not been good for commodities. With the global central bankers determined to reign inflation with aggressive, monetary tightening, demand slowing, and post-Covid logistic challenges easing materially, most commodities yielded negative returns in 2023. Natural gas, agri commodities (wheat & corn) crude oil, and base metals were notable losers.

·         Precious metals managed to stay in positive territory but did not yield any return despite having all the reasons to do that.

·         Energy prices have corrected back to the pre-covid period. Natural Gas and Crude Oil (despite higher production cuts by OPEC+) ended sharply lower. Natural gas prices are now lowest in three years. The latest inventory, consumption, and production forecasts for 2024 and 2025 are indicating further easing in energy prices over the next couple of years.

·        Agri commodities corrected despite inclement weather conditions across geographies and continued hostilities in Ukraine and sanctions on Russia.

  Cryptos – Gaining wider acceptance

Cryptocurrencies have been the best performing asset for the year. Value of Bitcoin, the largest and most popular cryptocurrency, has gained ~250% during 2023. Cryptocurrencies continued to gain wider acceptance from governments, regulators, financial institutions, market participants, and investors. Several smaller African and Latin American countries, like the Central African Republic, Uganda, Zimbabwe, El Salvadore, Paraguay, Venezuela, etc. have adopted cryptocurrencies in their monetary system, some even declaring bitcoin as legal tender.

Economic Growth – India best in the class

The overall economic growth is moderate as two of the primary engines of global growth the US and China stuttered. Germany and Sweden flirted with recession for most of the year, while the UK, France, and other European countries barely grew. In Latin America, Brazil managed to grow its economy by 3%, Argentina, and Chile were in recession, and other economies barely grew. The leading commodity-producing economies in Middle East Asia, Africa, and the Pacific (Australia) were either stagnant or contracted.

India - Best in the class

1HFY24 GDP growth (7.7% yoy) has surprised on the upside, beating the RBI estimates (6.8%) by a fairly wide margin. Most agencies and analysts have upgraded their growth forecasts for the entire financial year FY24 by 20-50bps. RBI had earlier estimated FY24 GDP growth to be 6.5%; but the current trajectory is indicating that India’s GDP may record 7% growth in the current year. The growth momentum also indicates that the present rates may not be restrictive for growth. 

I have been tracking the news flow and experts’ opinions regarding the developments in global commodities markets for the past couple of years. Of course, I am a novice in matters of global economics, trade, and finance; but the commodities markets are particularly something I could never understand.

From my elementary understanding of economics and human behavior, I understand that aging demography, deeper & wider penetration of dematerialization & digitalization in human lives, rising awareness about climate change, and deteriorating growth potential of the developed economies, and perhaps China also, definitely do not augur well for the commodities’ demand in the long term (10-15yrs). However, the opinion of experts is overwhelmingly in favor of a bull market in commodities in the short term (2-5yrs).

The key arguments presented by experts in favor of a bull market in commodities could be summarized as follows:

(a)   Energy prices have corrected back to the pre-covid period. European power prices, US gas prices, natural gas prices, coal prices, and crude oil prices are back to more “normal” levels. The latest inventory, consumption, and production forecasts for 2024 and 2025 are indicating further easing in energy prices over the next couple of years. Energy being one of the major costs in the production of commodities, lower energy costs and adequate supply is a bullish argument for commodities.

(b)   Focus on the use of clean energy, particularly for mobility and electricity production, is changing the demand mix for metals. The demand for metals like copper, aluminum, lithium etc. is rising much faster than the supply. The stockpiles are diminishing fast.

(c)   Commodity producers, mostly emerging economies, are getting stronger in global strategic balance. The expansion of BRICS to include more commodity producers in the emerging market alliance is just one instance. These economies are now in a much better position in determining the terms of trade, which are dominated by the financialized developed world in the extant global order.

(d)   The geopolitical conditions are worsening. Presently, two fronts (Palestine and Ukraine) are witnessing open war. The fear is that more fronts could open in the next couple of years as the political stands are hardening and no one is showing signs of backing out. Wars have been traditionally bullish arguments for commodities as demand for war equipment and reconstruction work need more metals and building materials.

(e)   There is not much consensus on this point, but a strong view is that USD as a global currency may have peaked and could potentially see a steady decline over the next many years. The share of global trade invoiced in USD terms and USD reserves of global central bankers have witnessed a consistent decline in recent years. Moreover, the cross-border flow of funds from the US has witnessed a sharp rise in 2023. Unsustainable US public debt has led to a downgrade of the US sovereign rating outlook. Besides, the trade conflict with China has led to a conspicuous shift of technological advantage from the US to China. These trends may consolidate the position of commodity-producing emerging economies enabling them to seek favorable terms of trade.

(f) Bloomberg Commodity Index is presently at the same level it was in November 1995.

I have avoided investment in commodity producers for a few years now. I think more study of trends in the commodities market, and a review of investment strategy is due.

The global markets behaviour in the year 2022 would remain subject matter of analysis for many decades. Almost all markets – equity, bonds, commodities, crypto, housing, arts etc. - have shown a classical pattern in the current year, despite several unconventional factors impacting the global economy.

If we observe from the averages the behaviour of commodity markets in particular has been very archetypal in a market still enduring a war, inclement weather and supply chain dislocations. S&P Goldman Sachs Commodities Index, has gained ~17% YTD 2022.

Evidently, the first half of 2022 saw a sharp surge in commodity prices led by energy and food prices, ostensibly due to the Russia-Ukraine conflict and severe drought in many parts of the world. However, easing of post Covid logistic constraints and monetary tightening by most central bankers led to an improvement in supplies; demand destruction and unwinding of speculative positions; resulting in lower commodity prices.

 

However, if we analyze the internals of commodities markets we find huge variation in price performances of various commodities within the same category. For example-

·         Energy: crude oil is literally unchanged for the year; Ethanol, Naptha, Propane etc. have lost 15% to 35% for the year; whereas Coal (+147%) and Natural Gas (+84%) recorded huge gains. Wind Energy and Solar Energy prices are down over 10% YTD2022; whereas electricity prices in European nations are higher by 37% (UK) ti 105% (France).

·         Precious metals: Gold is unchanged for the year; while silver(+5%), platinum (+10%), and Titanium (+27%) are ending the year with decent gains.

·         Other metals: Steel (-59%), Tin (-39%), and Copper (-11%) are major losers in the metal universe. Aluminum, Lead, Zinc are also ending the year with some losses; whereas Lithium (+157%), Bitumen (+20%) and Nickel (+46%) have bucked the trend. LME Index fell ~6% YTD2022.

·         Chemicals: PVC (-28%), Soda Ash (-13%), DAP (-13%), Urea (-41%), were some major losers during the year. Polypropylene and Polyethylene etc. are mostly unchanged for the year.

·         Agriculture produce: Coffee (-33%), Cotton (-25%), Rubber (-20%), Palm Oil (-20%), Wheat (-9%), etc. are ending the year with strong losses; Sugar, Cocoa, Tea are little changed; while Rice (+20%), Soy (+17%), Corn (+10%) are some notable gainers. US Lumber prices are lower YTD2022 by over 60%.

As of this morning, the uncertainty in the commodity markets appears much higher than the equities. The following uncertainties, for example, could continue to impact commodities markets in 2023 also:

·         Covid situation in China and growth trajectory post opening. A sharper recovery than presently estimated may again lead to a strong rally in many commodities.

·         A ceasefire in Russia-Ukraine conflict with easing of sanctions on Russia could impact energy and food markets materially.

·         A deeper recession triggered by persistent monetary tightening could result in sharper demand destruction and further inventory unwinding, resulting in further cuts in commodity prices. On the other hand a softer slow down followed by a guided recovery (monetary easing) could result in accelerated inventory rebuilding and sharper price inflation.

·         Extension of La Nina conditions beyond 1Q2023, as presently estimated, could further worsen food supply leading to sharp inflation in prices.

·         Further deterioration in international relations and persistent Sino-US trade war could accelerate central bank demand for gold.

In past couple of weeks, some news items, and market & economic trends have attracted my attention. All these news items & trends somehow reflect on the reflation trade that has dominated the global markets for past few months.

The rise in commodity prices in past one year is seen mostly a function of a combination of demand and supply side factors. Post global financial crisis (GFC 2008) the investment in new capacities had slowed down considerably. The economic lockdown due to outbreak of pandemic further curtailed the supply of many industrial commodities. The logjam at Suez Canal further impacted the supply chain. The supply of commodities obviously could not match the recovery in economic activity as the economies began to open up.

The trillions of dollars in pandemic related stimulus further boosted the demand, as all three activities, viz., consumption, capex and trading got boost from worldwide stimulus. The US government’s plan to invest US$1trn in building nation’s deteriorating roads and bridges and fund new climate resilience and broadband initiatives is also expected to lead the further rise in demand for industrial commodities like steel and copper.

1.    A newspaper reported that HDFC Bank has received Rs300bn in prepayments in the quarter ended June 2021. These prepayments were reportedly made primarily by the companies in commodities and infrastructure sectors.

2.    A famous Kolkata based investment manager publically made a very persuasive case for investment in a public sector steel company, implying that in the given circumstances the share price of the company could potentially see a 3 fold rise in next one year. He also claimed that their portfolio schemes are presently invested in all metal stocks.

4.    The analysts at Phoenix Capital Research noted that “One of the key drivers of stocks prices since the March 2020 bottom has been the Fed’s interventions. The Fed spent a total of $3 trillion between March and June 2020. It briefly dipped between June and July 2020 but has since increased at a steady pace courtesy of the Fed’s $120 billion per month Quantitative Easing (QE) program.

However, all signs point to the Fed reducing these interventions going forward. With jobs numbers like those from July (900K+ jobs were created), the unemployment rate down to 5.4% again, and inflation roaring (CPI is clocking in over 5%), the Fed is effectively out of reasons to continue its month interventions at the current pace. Add to this the fact that numerous Fed officials are calling for a taper to QE and even rate hikes, and it’s clear the Fed is on the verge of announcing that it will be reducing its money printing very soon.”

It is pertinent to note that the GDP estimates for another large economy (India) have also been revised downward at least twice in past 4months, by almost all global agencies.Obviously, this cannot be good news for the traders staking their money on continuing reflationary trade.

The International Energy Agency (IEA) cut forecasts for global oil demand “sharply” for the rest of this year as the resurgent pandemic hits major consumers, and predicted a new surplus in 2022.

The announcement led to sharp correction in crude oil prices to the three months prior levels.

7.    The last move of about half of emerging market central bankers was hike in policy rates or policy tightening. Obviously, the days of monetary easing are behind. This shall definitely check the runaway inflationary expectations and therefore impact the reflation trade. 

8.    A BollombergQuint report highlighted that “Indian companies are running out of room to absorb rising raw material costs, which could force the central bank to unwind stimulus faster-than-expected and threaten a stock market rally that has earned billions for investors. Companies from the Indian unit of Unilever Plc to Tata Motors Ltd., the owner of the iconic Jaguar Land Rover, are increasingly complaining about pricier inputs and are frustrated at not being able to fully pass on costs to consumers reeling from the pandemic-induced economic shock. But it is only a matter of time before the pass- through happens, warn economists.

While its a tough balancing act, companies are mindful that something will have to give in eventually. In this case, it could mean higher prices being passed to consumers gradually as a recovery gets stronger in Asia’s third-largest economy.”

10.  Earlier this week, the US Senate gave bipartisan approval to a US$1 trillion infrastructure bill to rebuild the nation’s deteriorating roads and bridges and fund new climate resilience and broadband initiatives.

The plan reportedly includes, US$550 billion in new federal spending, to expand high-speed internet access (US$65bn); build/rebuild roads, bridges, etc (US$110 billion); airports (US$25 billion); and the most funding for Amtrak since the passenger rail service was founded in 1971. It would also renew and revamp existing infrastructure and transportation programs set to expire at the end of September.

11.  Back home, financials have are sharply outperforming the commodities since past three weeks. The market is telling that metals, sugars etc. have reached their peak margin and peak valuations. Using the strong price cycle, many large commodity companies have repaired their balance sheets. Consolidation by way of IBC process has also helped the larger companies. It is time that these companies may be thinking about the next capex cycle. Sugar companies have already embarked on a major capex cycle to set up new ethanol capacities. Steel companies are already planning major capacity additions. As per media reports SAIL is looking to expand capacities by 12-14 mt at its steel plants at Bokaro and Rourkela.

The popular inflation hedge trade (gold and silver) has done much worse than the overall commodity universe; whereas Bitcoin (perceived to be one of the most riskiest and volatile asset presently) has done very well.

Conclusion

These are still early days to conclude anything from the above cited news items and trends. Nonetheless, in my view, the following deductions from viewpoint of investment strategy may be considered reasonable:

·         The sharp run up in commodity prices is factor of supply constraints and demand stimulus. There are indications that supply constraints may ease as economies open up further; demand may cool down as monetary stimulus are gradually withdrawn and pent up demand subsides.

·         The commodity price inflation is now testing the limits of the industrial consumers (manufacturers). Any further rise from here shall be passed on to the last consumers, who would have much lower absorption capacity in absence of further stimulus checks. It is reasonable to assume that normal demand supply equilibrium will settle at a lower level only.

·         The balance sheets of commodity and infrastructure companies have seen substantial improvement in past one year. These two sectors accounted for more than half of the stress in the banking system. Besides, the credit growth is likely to pick up as companies rush to augment capacities to meet the increased demand and avail new government incentives for manufacturing sectors.

·         The conventional wisdom suggests that now it’s the turn of financials and capital goods manufacturers to do well. Commodities can wait for FY24 to have their turn again.

 “Commodities” is the most important buzzword in equity markets these days. Chartists, analysts, economists, strategists and traders et. al. are predominantly talking about stocks of commodity companies. The strong rally in the stocks of commodity producers is primarily based on the material rise in the global commodities’ prices, especially in past one year.

I analysed the market performance since announcement of first lockdown (25^h March 2020). I also looked at the market performance in three other timeframes, viz.,

(i)    Since January 2021, because most of the restrictions announced in March 2021 were lifted, US elections were completed and vaccine launches had already begun.

(ii)   Since February 2021, because a market exciting budget was presented with strong on infra building and fiscal discipline; and UK exit from EU was complete, and global trade had started to normalize.

(iii)  Since April 2021, when a second wave of pandemic started to hit few states of India badly

The following are some of the key trends observed in the performance of market in these time frames.

1.    “Metals” have been a clear outperforming sector over all timeframes. Nifty Metals has returned 255% since Lockdown 1.0, more than double of the second best performing sector, i.e., Nifty IT (121%). Auto (109%) and Pharma (108%) are other sectors that outperformed Nifty (90%) in this timeframe.

2.    Pharma has materially underperformed metals over all timeframes. Which sounds bit counterintuitive, given the pandemic situation.

3.    FMCG is a top underperformer over all timeframes, despite huge social sector support, resilient rural sector, and strong corporate performances. Some of this could be explained by significant outperformance of FMCG sector in previous year

4.    Media is another noticeable laggard, despite work from home, lockdown, etc.

5.    Despite huge outlay for capacity building in 2020 stimulus packages and FY22budget, Infra sector has performed mostly in line with the benchmark Nifty over these timeframes.

6.    Realty has been the worst performing sector over all these timeframes.

7.    PSU Banks have outperformed their private sector peers in 2021. This is in line with PSEs in general outperforming Nifty in current year.

8.    Announcement of much awaited scraping policy does not seem to have nay impact on auto sector. Nifty Auto is down 4% since budget.

9.    The positive momentum that was created in reality sector last year due to duty incentives and lower rates seems to have subsided. Nifty Realty has underperformed materially after Budget.

10.  In FY22 so far, Only commodities and pharma have yielded meaningful return.

Whereas the investors have enough good opportunities to invest in markets, the traders are facing many challenges. The biggest challenge is that most trading opportunities are available in the cyclical businesses like commodities and automobile. The price movements in these stocks are sharp and quick on both sides.

Since most of these stocks (metals, sugar, paper, cement, textile, power, auto etc.) have already gained significantly from their recent lows and are no longer available at cheap valuations, the margin of safety in trading these stocks is obviously low. In past couple of decades, the commodity cycles have been short and deep. If this cycle also turns out to be a usual cycle, against a super cycle as widely assumed, the corrections could be quick and deep.

In these circumstances, most of the traders, especially the smaller ones, are forced to trade with small quantities. The holding period is much smaller, mostly less than a week. Profits/losses are booked at much smaller amount. The number of stocks traded is much larger and the quality of stocks being traded is deteriorating with every rise in the prices.

Some readers and trader friends have asked for my views on trading opportunities in the market. I must say, trading in stocks is certainly not my domain of expertise. This requires completely different skills and training. Nonetheless, since a question has been put to me, I must try to answer with whatever knowledge and experience I have. In my view—

·         In past one month the benchmark indices have been mostly directionless. However, we have witnessed heightened volatility in this period. Usually, this phenomenon is witnessed close to the top or bottom of the market cycle. We may not be close to the peak of the market, but certainly we are not close to the bottom either.

·         The risk reward for the traders is negative. The market upside may be limited to 5-7%, whereas the downside could be in the range of 18-20%, even if the indices retrace 35-40% of the up move from lows of March 2020.

·         The traditional signals for correction – Market to GDP, yield differential, EBIDTA Margins peaking, distance from 200EDMA – are clearly visible but being ignored by the market.

·         The rally in commodities is totally counterintuitive and may be driven more by hopes of continuing supply constraints. The inventory buildup may in fact hurt both the hoarder and the financier in mid-term.

·         Most of the IPOs to be launched in 2021 are new economy businesses. The structure of the market is clearly shifting away from the conventional cyclical businesses, in line with the global trends. Tech enables financial services (Fintech), E-Commerce platforms, ITeS, AI etc are likely to get maximum allocation of new money. Intuitively, the market activity shall be dominated by the non-cyclical technology driven businesses. Healthcare and financials may also continue to remain in the trading arena. But commodities and utilities should logically be waiting on the sidelines for another decade at least.