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| Dear Investor, |
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| India's trade deficit in January hit a 1-year low at ~USD17.75bn, as both merchandise exports and imports contracted for the second consecutive month. |
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| US Producer Price Index (PPI) eased to 6.0%YY in Jan-23 from 6.5%YY in Dec-22. Although decelerating, producers continue to see stubborn inflation, which supports an expected 25bp rate hike from the US Fed Reserve next month. |
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| A Quick Overview: |
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India's headline inflation as measured by CPI rose unexpectedly to a three month of high of 6.52%YY in Jan-23 from 5.72%YY in Dec-22 on account of larger than expected rebound in food inflation. Core CPI inflation remained unchanged at 6.1%YY. Citi analysts have revised their average CPI forecast upwards to 6.2% (+60bps) for 4QFY23 and 5.1%YY for FY24 (+20bps). They expect another 25bp rate hike at the April MPC meet. |
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India's Merchandise exports contracted 6.5%YY in Jan-23, following a slowdown in demand from key developed economies. Imports also contracted 3.6%YY during the same period due to a sharp fall in Gold imports which fell by 70.7%YY. The contraction in both merchandise exports and imports led to the overall trade deficit hitting its lowest in a year at ~ USD 17.75bn. |
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India's foreign exchange reserves fell by ~USD 8.3bn to ~USD 566.95bn posting its biggest fall in 10 months on account of a fall in the foreign currency assets. |
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US Headline CPI Inflation rose by 0.5%MM in Jan-23 following a 0.1%MM increase in Dec-22. The CPI was up 6.4%YY from the same period in CY22 exceeding consensus expectations. As per Citi analysts, getting broad price increases down to 2%YY on a sustained basis will take longer than 2023. They expect headline CPI will end CY23 at 3.5% with another rate hike of 25bp expected in March Fed policy meeting. |
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The final Eurozone 4Q-22 real GDP growth moderated but remained in positive territory, rising by 0.1%QQ in 4QCY22 (1.9% YY in 4QCY22). Despite slowing growth, Euro-Area preliminary employment data continued to surprise more than expected with employment growth rising by 1.5%YY in 4QCY22. Citi analysts expect three more rate hikes in the deposit facility rate implying a possible terminal rate of 3.5%. |
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UK headline CPI inflation eased from 10.5% YY in Dec-22 to 10.1% YY in Jan-23 on account of larger than expected reductions in transport and a decline in fuel prices, while food inflation continued to rise. The Core CPI also fell from 6.3% YY in Dec-22 to 5.8% YY in Jan-23. Citi analysts expect a final rate hike of 25bp to a terminal Bank Rate of 4.25% at the March monetary policy meeting. |
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Equity: NIFTY continues to trade at high valuations both on an absolute and relative basis with 1yr fwd. P/E at 20x (premium to EM/DM and vs bond yields >1sd above LTA). Subject to their appetite for risk, clients may retain their SIPs and STPs and adopt a "buy on dips" approach. |
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Fixed Income: Citi analysts expect 10y G-sec yields likely to be capped around 7.40-7.45% and gradually drift to 7% over the coming months.. Fixed-income investors should consider their investment horizon by creating buckets while reviewing risk and reward in their portfolios. Investors with up to a one-year horizon may prefer liquid, ultra-short and low-duration funds. Investors with a 5-year horizon may consider Short-term, corporate bond, Medium duration, and Target maturity funds while remaining diversified and preferring quality. |
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