Early Warning & Signals Through Charts: JULY 2022
Early Warning & Signals Through Charts: JULY 2022
Early Warning & Signals Through Charts: JULY 2022
L1
S&P GSCI Agri Index S&P GSCI Industrial Metals Index S&P GSCI Energy Index (RHS) L1
Energy CAPEX Is Rising Again Driven By Coal & LNG CAPEX By Major Oil And Gas Companies
Crude Oil
110% >$100
Indian economy faced debilitating effects India’s GDP as a % of
from higher oil prices in the past. On two 101%
100%
occasions when Crude oil prices went past (Brazil + Russia)’s GDP
$100, the Indian economy slowed 91%
appreciably, Rupee depreciated and bond 90%
yields rose. 25% CAGR
However, over the years the size of Indian 80% over 12 yrs
economy has risen swiftly. It is now as large
as the two biggest commodity exporters 70%
combined (Russia + Brazil).
61% Crude Oil
This means Oil prices needs to rise a lot 60% 58%
more to impact the Indian economy the >$100
way it did in earlier two cases in 2008 and
50%
2011-14.
The trouble for India: price of Oil at this time 40% 39%39%
is beyond $125 / barrel for Brent crude. 35%
32%
30%
Jan-95 Jan-02 Jan-09 Jan-16 Jan-23
INR Trillion
24
GST have improved and government is likely 6.5
6.1 22
to meet its disinvestment target. 5.9
20
5.5 18
This means excess expenditure in FY23 and 16
till FY25 can act as a economic stimulant to 14
support growth. 4.5 12
10
At this time the street is focused & worried 3.5 8
3.5
about financing of this deficit, but let’s not 6
forget what higher expenditure does. It can 2.6 4
lead to stronger economic growth. 2.5 2
FY07
FY23
FY03
FY05
FY09
FY11
FY13
FY15
FY17
FY19
FY21
2000-01 2004-05 2008-09 2012-13 2016-17 2020-21
Jul-67
Jul-82
Jul-97
Jul-40
Jul-43
Jul-46
Jul-49
Jul-52
Jul-55
Jul-58
Jul-61
Jul-64
Jul-70
Jul-73
Jul-76
Jul-79
Jul-85
Jul-88
Jul-91
Jul-94
Jul-00
Jul-03
Jul-06
Jul-09
Jul-12
Jul-15
Jul-18
Jul-21
is even higher at 27. This indicates that there
is an elevated level of ‘Fear’ in the market.
This is a bullish reading for stocks. 6 Month Realized Volatility Long Period Avg
CBOE VIX Index Current 6 Month Realized Volatility
FY89
FY65
FY69
FY71
FY73
FY75
FY77
FY79
FY81
FY83
FY85
FY87
FY91
FY93
FY95
FY97
FY99
FY01
FY03
FY05
FY07
FY09
FY11
FY13
FY15
FY17
FY19
FY21
FY23 YTD
India Banking Credit Growth of SCBs (yoy,%) 10 Year Rolling Average
Source: CMIE, DSP Data As on June 2022
What Happens When You Invest In Indian Banks Below 2X P/B
45000 4.5
0 1.0
Spreads: Cement price (-) energy costs (-) freight costs (LHS) EBITDA/ton (Rs) (RHS)
4,500 1,500
A surge in input costs have led to a squeeze on
margins for cement sector companies. Coal & 1,400
diesel cost inflation continues to remain a key 4,000
area of concern for the sector. 1,300
1,200
Over the last many quarters the realizations 3,500
have not grown and EBITDA/ton for the sector 1,100
has declined.
3,000 1,000
However, the sector may see a reduction in
headwinds if & when input prices ease. The 900
cement stocks have seen large price 2,500
800
correction recently and are still very volatile.
700
This could be a sector to watch out in H2 of 2,000
2022 with a focus on input price pressures and 600
demand recovery for cement. Watch out!
1,500 500
Nov-19
Nov-21
May-16
Aug-16
Nov-16
May-17
Aug-17
Nov-17
May-18
Aug-18
Nov-18
May-19
Aug-19
May-20
Aug-20
Nov-20
May-21
Aug-21
May-22
Feb-17
Feb-18
Feb-19
Feb-20
Feb-21
Feb-22
Source: Kotak Securities IE Research, Data as on June 2022
Valuations Reach Historical Averages
43 US Money Supply M2 growth slowing; 30
250% Valuations correcting in sync with it
Market cap to GDP Above Average 38 25
India USA 20
200% 33
15
167% 28
10
150%
23 5
100% 18 0
Jul-17
Jul-18
Apr-19
Jul-19
Jul-20
Jul-21
Oct-17
Jan-18
Apr-18
Oct-18
Jan-19
Oct-19
Jan-20
Apr-20
Oct-20
Jan-21
Apr-21
Oct-21
Jan-22
Apr-22
97%
50% NSADAQ 100 Index P/E Ratio (LHS) NIFTY Index P/E Ratio (LHS)
Nov-12
Sep-13
Feb-14
Jul-14
Jan-17
Nov-17
Sep-18
Feb-19
Jul-19
Dec-19
Jan-22
Apr-13
Dec-14
Oct-15
Apr-18
Jun-12
Oct-20
Jun-22
May-15
Mar-16
Jun-17
May-20
Mar-21
Aug-16
Aug-21
US M2 Money Supply (%, YOY) (RHS)
India Bond Yield to Earnings Yield ratio At Average
2.20
India valuations Below Average 35
5.5 2.00
Nifty Index Average P/E: 19.9 30 1.80
Nifty Index Average P/B: 3
NIFTY 50
4.5 1.60
25
1.40
3.5 20 1.20
2.5 15 1.00
0.80
1.5 10
0.60
Feb-22
Feb-06
Feb-08
Feb-10
Feb-12
Feb-14
Feb-16
Feb-18
Feb-20
Jun-09
Oct-06
Jun-05
Jun-07
Oct-08
Oct-10
Jun-11
Oct-12
Jun-13
Oct-14
Jun-15
Oct-16
Jun-17
Oct-18
Jun-19
Oct-20
Jun-21
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
Jun-22
Price to Book Ratio (L1) Price Earnings Ratio (P/E) (R1)
BEER
Source: Bloomberg on 30th June 2022
Losses Are A Part Of The Gains
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