Weekly market quote by Hemant Kanawala, Head - Equity, Kotak Mahindra Life Insurance Co. Ltd.

The global markets, in the last few days, have become nervous about rise in inflation led by industrial commodities like copper and steel, crude oil and agri commodities. Although the central bankers have assured the markets that policy stance will remain accommodative till the growth stabilises and unemployment rate comes down, market yields as measured by 10 year GSec has firmed up in US and India. This has also led to firming up of US dollar against other major currencies like Euro and Yen. If the yields in US continue to move up beyond 1.5% and US dollar also strengthens, then it can trigger withdrawal of funds from risk assets like emerging markets. In CY21, emerging markets like Taiwan and South Korea have seen outflow of US$ 8 bn. However, India has received FII flow of US$ 5.5 bn till now in CY21. For the 9 months ended Dec 20, India has also received net FDI flow of US$ 40 bn, which is a 30% increase over corresponding period in FY20. India’s Forex reserves are at all-time high of US$ 584 bn, which covers our imports for 14 months. Nifty is trading at valuation of P/B of 4.3, which makes it vulnerable to correction in case of global sell off. Looking at the expected strong earnings trajectory over the next 2 years and stable macroeconomic conditions, investors should use such correction to increase exposure to equities.