Andra Tutto Bene is an Italian expression that means “everything will be fine.” This is exactly what is going on in the world today. Many events have influenced market sentiments in the last year, including supply disruption, the Russia-Ukraine war, stubborn inflation, and massive rate hikes by central banks. Countries like India faced the brunt of higher crude and other commodities pushing the value of the rupee down.

But those headwinds are now turning into tailwinds.

To begin, consider crude oil prices. Crude oil prices have risen significantly to $116 per barrel since June 22. It has now dropped to $81 per barrel. Higher crude oil prices present numerous challenges to the government and the RBI. It increases the fiscal deficit (as India imports most of its crude oil). It raises inflation, lowers the value of the rupee (because we need more dollars to buy the same amount of crude oil) and pushes interest rates to control inflation.

A lower crude oil price would solve many problems with a stronger rupee and lower inflation. Eventually, the Reserve Bank of India would stop raising interest rates. It would gradually decrease over the next 6-9 months.

Fed will Decelerate

Jerome Powell stated that future rate hikes would be less aggressive than the previous four. On December 14th, the Fed will announce a new policy, which could include a rate hike of 50 basis points. But what has the market excited is that after December, the rate hike will be even lower, and the Fed will begin to reduce interest rates in the next 9-12 months. Rate cuts, I believe, will be as swift as rate hikes. This should boost the confidence of equity investors.

Supply Side Issues are Tapering Off

Following that, the supply side deteriorated as one issue after another hampered the free flow of goods and services. However, the situation has significantly improved in the last six months. Chip shortages are a thing of the past; many raw materials are now in plentiful supply and at lower prices. Industrial metal prices and costs of many chemicals have fallen. Even freight rates have dropped by up to 30%, and previously scarce shipping containers are now in plentiful supply. 

Margins to Improve

India Inc’s margins were squeezed because it couldn’t pass on all its high input costs to customers. As a result, while the top line increased, the margins contracted. Lower crude oil prices, raw material costs, and freight charges should help India Inc. We expect margins to increase much faster than the top line.

FIIs from Net Sellers to Net Buyers

FIIs sold heavily into the Indian equity market, significantly more than during global financial crises. They sold Rs 2.51 lac crore in the 12 months ending June 2022. Despite the so-called rich valuations India commands, they have turned positive on the Indian market since July. They invested Rs 51000 crore in August and have now invested another Rs 36000 crore in November. They have invested nearly Rs 91000 crore in the Indian equity market since July.

At the same time, retail investors have demonstrated great maturity, putting more money into the market with each decline. They are reaping the benefits as market sentiments shift to the positive.

The Rally towards Broad Based

Many investors are concerned about the recent rally because, while the market has reached an all-time high, their portfolios have not. The reason for this is that the current rally was very focused. The rally became more broad-based in the last week of November, with the participation of mid and small caps, which attracts more money from retail investors.

So, even though the world has faced numerous challenges, things are improving. The scenario of doom and gloom is over. It’s time to relax and enjoy a smooth ride with fewer speed bumps.

As a result, it is time to say – Andra Tutto Bene.