Market by 2026
Introduction
It has been a volatile 2022 so far, the world was still recovering from Covid crises and in between the new financial crisis surfaced in the form of Inflation, Supply chain disruption and economic slowdown.
The Inflation started showing its sign from October last year when the 10year US bond yield breached 1.62% that was result of COVID spending of 13 trillion USD which the US government spent by issuing the US treasury bond. In addition, the Fed tried to the keep the interest rates low for the short-term maturities. The effect of that was seen in the yield of long-term bonds which started trading at premium above inflation.
FED and other central banks were finding the best tools to take control over that situation. But the fallout from the war in Ukraine compounds the challenge and the Headwinds from the war added to large cumulative losses in output particularly for commodity-importing market and developing economies. Surging commodity prices have contributed to broadening price pressures, pushing inflation above central bank targets in most inflation-targeting countries.
FED, ECB, IMF and central bank of different nations realised if the inflationary situation is not tackled now could result into multiple consequences ranging from food supply shortages, debt distress, Unemployment, etc.
In April’ 2022 IMF issued a warning that about 60 percent of low-income countries were already in or at risk of debt distress that could lead to widening spreads for countries with weaker fundamentals, making it more costly for them to borrow. The recent country to add in the list of default is Sri Lanka.
The best tool which central banks opted to reduce the Inflation is to raise the Interest rates to curb down the soaring inflation. Any tool/measure comes at its own cost and now this time the cost is to reduce the demand which is now seen in the latest PMI’s data of the different countries.
Indian economy and the impact of Inflation
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Russia-Ukraine conflict has also impacted Indian economy badly The annual inflation rate in India sour to 8 years high 7.79 percent above all expectation.
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Impact on Market:
- Valuation: Even before covid, the Indian economy was going through a bit of slow down when the GDP was hovering around 140Trillions, and the market cap of Indian equities were at 150 trillion which consistently making Indian market trade above 108% of the GDP. Covid triggered a decent fall that brought down the ratio below the trendline to 78%.
- After that the government took multiple measure to revive the economy by providing covid incentives, PLI schemes, disinvestment, make in India, etc which flooded the FII money in the Indian market with 27Trillion INR in FY 2021
- But as against the anticipated GDP growth the revised GDP estimates triggered the overbought situation and as a result the market valuations become overstretched. As a result, Indian market witnessed a correction of over 10% so far this year, pulling out the FII money of around 10 trillion INR in just 6 months.
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- Market PE & IPO: 2021 witnessed highest IPO in a calendar year with USD 15.48 raised through IPO. 63 companies hit the market, many with bumper listings including company like Sigachi (listing gain of 249%). High valuation listings, High FII inflow took the market to the PE multiples of 32X (Which was clearly overbought)
Where do we see market by 2026?
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According to the IMF projection, Indian economy to be a 353 trillion economy by 2026 which means, India would likely to register a growth of nearly 30% in next four years.
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Downside Risk:
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Technical analysis:
According to our projection, we could see market touching 20000 levels by the end of 2023 and by 2026, market could cross 24000 levels which means about 58% return in a time spam of 4 years
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Disclaimer
Learning is an ongoing journey; The information and the material contain above is for knowledge purpose.
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