DSP Mutual Fund’s monthly report is always full of interesting charts and insights. This month’s report provides valuable insights into the global growth slowdown, valuations, and opportunities.
Here are some of the highlights:
Advanced economies are on the verge of a slowdown.
US services consumption and US manufacturing PMI have been declining since 2018. US bank loans and leases have been declining since 2016 and are currently at around 5% YOY, while bank lending standards have been tightening since 2015. These indicators suggest that the US economy is slowing down, which can have a spillover effect on other advanced economies.
A global slowdown can hurt India’s services exports and growth.
India’s net services exports have grown at a faster pace than nominal GDP and now contribute more than 1% to India’s growth. However, in case of a global slowdown, India’s services export growth is likely to be slow, which can have a sobering impact on India’s growth and core inflation.
But India Continues To See Steady Growth…
Earnings growth, economic resilience, and investment flows continue to support Indian equities. The Nifty Index’s 200-day average has surpassed the 18200 index level and is accompanied by a rising EPS trajectory, which presents an appealing opportunity for equity investors to consider increasing their equity allocation within the range of 18,200 to the previous life highs of the 18,600 index level.
The trajectory of earnings growth in India remains healthier than that of its peers, which indicates that India’s economy is growing steadily.
The EPS growth of the Indian IT sector has slowed down, and valuations, although lower than the FY23 peak, remain well above pre-COVID averages. EPS growth and PE ratio of the Nifty IT Index constituents from January 2013 to May 2023. The EPS growth of the Nifty IT Index constituents has been declining while the PE ratio has been increasing and is currently at around 30.
The sales of PVs in India have been growing at a steady pace over the years, with some fluctuations. The 3-year CAGR of PV sales has been rising steadily. SUV market has exploded, and consumers are transitioning from small, economical cars to larger, high-ticket SUVs.
Gold miners are currently trading at a lower EV/EBITDA multiple, have a higher dividend yield, and are less levered than the S&P 500. This shows that gold miners are valued better compared to the broader market.
Gold miner profitability was hit by high energy prices in 2022, but a revival is expected in 2023.
Gold mining equities outperform, but only in a gold bull market, and capital allocation discipline has helped miners be net debt positive in this cycle. Gold miners are currently trading at attractive valuations and could potentially benefit from a revival in gold prices.