The Signal (weekly highlights)

1. Morgan Stanley downgrades Indian equities over expensive valuations

Morgan Stanley downgraded Indian equities to equal-weight from overweight on Thursday due to expensive valuations, and said it expects the market to consolidate ahead of potential “short-term headwinds”.

The downside risk in the short term to the Indian equities can arise from Fed tapering, rate hike by the RBI and higher energy costs. The brokerage has upgraded Indonesia to Overweight while maintaining equal weight to China.

2. Sebi introduces a two-tiered structure for benchmarking MF schemes

The first-tier benchmark will be according to the category of the scheme. The second-tier should be reflective of the investment style or strategy of the fund manager within the category.

However sectoral/thematic, ETF & hybrid funds will continue to have only one primary benchmark. Going forward the move will ensure uniformity in benchmarks and ease of comparison

3. China-plus-one to push Indian textile exports

Backed by the China Plus One’ sentiment globally, India’s textile exports expected to grow by 81 per cent to $65 billion by 2026 from the pre-Covid level of around $36 billion in 2019

The government’s PLI scheme towards the textile sector will also be a key factor to drive the growth. The budget outlay for the PLI Scheme is Rs. 10,863 crores. Global brands can also be expected to source their production in India and can help create more than 7.5 lakh jobs.

4. Q2 earnings: Sales rise, input costs hurt India Inc profit margins

With demand coming back across markets, rural and urban, the September quarter saw corporate sales regain momentum. Larger players continued to take away market share from unorganized units

However, the management commentary has been titled towards inflationary pressures hurting margins and restricting the bottom-line growth. Some firms however took price hikes and cut back on non-essential expenses to protect their margins. 

5. Liquidity management by RBI pushes up CP rates

Rates on short-term debt instruments such as commercial papers (CPs) surged sharply by 10-15 basis points this week, due to liquidity management by the Reserve Bank of India.

Currently yields on CPs maturing in three months issued by NBFCs are in the range of 4.05 – 4.15% while those on manufacturing companies are trading in the range of 3.70-3.80% as against 3.55-3.65%.