You know how every story follows a certain plot? First, there’s hope, then there’s disappointment, and finally there’s a happy ending. That U-curve is what adds structure to every story.
Brahmastra and Cinemas
Take the epic Brahmastra for example. Rs. 400 crore was spent on making Brahmastra Part One. Box office collections were expected to be massive too. In the run up to the release, PVR and Inox had gained 2-4%.
And then came in disappointment and negative reviews. Occupancy rates are now expected to go lower for the already over-priced tickets (Rs. 1,200 for 3D in Delhi-NCR, beat that!). Both stocks lost 5% after the release.
But hey, despite the failure of Brahmastra (and Laal Singh Chaddha and Raksha Bandhan), PVR and Inox are trading at reasonable valuations. Good content, a strong post-COVID recovery, and a merger approval would be strong triggers for these stocks.
The India Story and the Markets
The India story too seems to be going the same way!
We have stuff to get excited by - domestic strength, FII inflows, GDP surpassing that of the UK, and all that. And the markets seem to be reacting positive to these.
Yet, lets not forget the risk of disappointment that can emerge from rising rates, a strong dollar, and the side-effects of a global recession. India is not immune from these factors, and the markets will lose traction at these negatives.
Despite all this, long-term fundamentals for India look super strong. One would lose out massively by not playing the India story.
All we’re saying is there will be dips, buy on them!
Hope
The RBI has been prudent in acting against inflation by raising rates. The last inflation print did inch lower, providing respite to the markets.
Inflation in the US too seemed to inch a little lower, despite still hovering around multi-decade highs.
Global commodity prices have been cooling off. Oil and metal prices have corrected sharply in the last few months.
Disappointment
The Fed Chief’s comments on rates spooked global markets a couple of weeks ago. Expectation-setting got tuned to another mega hike by the Fed as the jobs market continued to remain hot. The dollar shall continue strengthening, and add pressure on our deficit.
Russia indefinitely shut down its Nord Stream I gas pipeline, which supplied natural gas to Europe. Gas prices in Europe are already 5x compared to last year. If Russia doesn't resume gas supply before winter, Europe would slip into a recession.
The ECB raised rates by 75 bps, and commentary clearly indicated that current rates are far away from where they can bring inflation down to the 2% medium term target.
Happy Ending
India’s domestic economy is on a structural uptrend. India’s GDP recently surpassed that of the UK, becoming the 5th largest economy globally. Great, symbolically for sure, but truth is, we don't quite fare well on per capita GDP.
However, at 7.4% growth estimated for the year, and years of high growth ahead, we’ll get there!
Until then, remember the hope, buy the disappointment, and ride the happy ending!
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