EXPECT THE UNEXPECTED FOR THE MARKETS AND ECONOMY..

It might be harsh to read but sorry can't bluff. It’s time for free money to get to pockets from where it came. 50bps hike seems imminent and consumer sentiment is expected to be down for Feb and might get worse if the war breaks out. Crude is at an all-time high $100/barrel is not easy to accept for the consumer market. The middle class across the world will find it hard to swallow and that is another replacement for consumers to cut down on consumption.

Many people were under the notion that Feds tapering will not be like 2013 well every free money withdrawal comes with pain and if the speed of withdrawal is fast enough then the pain will double. A 40-year hike in inflation and consumer confidence blowing up to 11 years low is a matter of concern for the business and GDP growth for the economy.

But the real problem is going to come when the GDP slowdown will trigger due to massive interest rate hikes. This will turn the table for cutting down on production as consumers will leave with more costs and fewer jobs.  Yes, this is what is being ignored currently.   With a higher rate of interest comes pressure on those debt papers that will face problems that have low credit ratings. Since corporate earnings will take set back and the same will get reflected on these papers.  Mortgage and corporate loans followed with the retail loans will get into pressure placing more consumption to fall which leads GDP and other macro numbers to be poor.

 Consumer debt is going to be unbearable going ahead and particularly for BNPL products.  Across macro and economic numbers will be cut down and reduced in the coming two months which will reshape the investment thesis for the year 2022.

In emerging markets, all asset classes will find redemption and only redemption. The rebalancing of equity portfolios will be faster rather would be much steeper compared to previous historical trends. It not only saves for the doomsday but for the long term.  Now cross country debt instruments and currency all gets into a musical chair round where volatility will drive the sentiments and portfolios into an upside-down.

Rising interest rates, cut down and rebalances the forward profit guidance, and when one does not have clarity about the changes in the consumer demand pattern the cut-down projections will not portray the correct decision for equity investing. Some funds, he noted, may also seek to buy into private debt and less-liquid fixed-income securities for higher carry, lower duration, and less correlation with other more liquid asset classes. Some large pension plans underwent significant changes in their exposures to actively and passively managed bonds last year.

Short-term bonds will be sold off and people will jump from scary junk bonds as corporate will struggle will higher interest rates.  As we told earlier that portfolios will now face faster rebalancing. Sovereign wealth funds, hedge funds, pension funds, and all those fixed income products will be heading for massive change in portfolios which is bound to create an earthquake for equity markets across the globe.

Currency volatility will drive depreciation across another country which is a double gain for the FII’s to sell emerging equities and other asset classes.

Now back to India it is being found that is the test for all those new breeds of investors who came to invest in the last 24 months of Covid. Now it’s going to be the test of nerves.  Today’s cheap might become tomorrow’s cheapest hence all those so-called fund managers sitting in every house is now going to give the biggest test. Many investors might be wiped out for the next 3 years from the market.   INR depreciation cannot be stopped and if the war gets into place the inflation will shoot up and hence it will be unbearable across the globe.  

The journey of the market from 16000 to 17000 well you enjoyed that ride now enjoy the reverse. This is learning for all those newly joined market participants. The irony is your trading cost can be a zero-sum game but not the guidance or advice required to deal in these uncertain times.  Currently, the market is in the mood of accepting all the premiums of the worst of the global market, and hence the red line will be long guests before the Green one comes up.

Any 4^th wave or new variant entry might only change the game for placing Breaks on the Fed interest rate hike. The best advice at this point of time when one does not have clarity towards the direction and due to more fog on the street it’s better to wait and wait silently till the fog disappears.  It's time to accept you are not a fund manager and let the expert work only.