After experiencing the booming stock market amid the crippled 2020 economy, many investors are experiencing the other side. Despite a growing
economy, the markets have turned treacherous.
The wild ride on the equity markets continued in May 2022, with the Nifty 50 sinking more than 1320 points by mid-May as investors worried about a recession in the US, inflation, the war in Ukraine, and tighter monetary policies by major central banks across the globe. However, markets recovered in the second half of the month, with the Nifty 50 losing 3% for the month. Post the market correction of over 10% after hitting a record high in October 2021, the market valuation is near its long-term average. Markets may continue to remain volatile in the near term. However, as the dust settles, we believe the fundamentals for equity markets in India are intact with steady growth in earnings. Overall earnings for Q4FY22 were in line with market expectations, however, there was a wide divergence between sectors due to the rising raw material prices. Going forward, the full impact of rising raw material prices could be felt in the first half of the current financial year.
Also, as India approaches a size of a $5 trillion economy over the coming years, the aggregate market capitalization of Indian companies shall grow by 10-12%, providing investors with ample opportunities to create wealth.
Recently, the Indian government announced a partial ban on wheat exports, an attempt to tame the prices and meet domestic demand. Although India
accounts for only a fraction of global wheat exports, the protectionism move made by the Indian government has been widely criticized.
Improved seed selection and better farm practices have given bumper harvests in recent years. However, a severe heatwave across some major wheatproducing states ruined the harvest, impacting the output. Like India, 20 other countries have put restrictions on exports of food and fertilizers. These protectionism measures could lead to a full-scale trade war.
For three decades, falling trade barriers and hyper-efficient logistics produced an age of easy trade across the globe. But over the last few years, a series of disruptions have increased trade barriers. Tariff rate hikes during the US-China trade war, covid induced lockdowns, supply disruptions due to the Russia-Ukraine war, and export controls are all toppling the supply of goods and commodities. While some of the above factors may fade away with time, there is an increasing fear of deglobalization which could lead to a world of lower growth and higher prices.
Hundreds of billions of dollars got wiped off as the prices of most cryptocurrencies plunged to their lowest point since 2020. Even an algorithmic stablecoin called TerraUSD (UST), a digital token designed to maintain a peg of 1:1 with the dollar, plunged, posing the biggest test to decentralized finance.
The collateral damage of UST losing its peg was extensive on the crypto
token, Luna (the cryptocurrency that helps UST stablecoin maintain its dollar
peg), which nosedived from trading at a high of around $119 in April 2022 to
a mere fraction of a cent (~$0.0002).
The crypto market may bounce back in the future, but the message is clear: Cryptocurrency as an asset class is not ready to be part of an investor’s core portfolio.
Bitcoin, the largest cryptocurrency, is sought as a substitute for fiat currencies, is highly volatile and often expensive, with little recourse when the coins get lost or stolen. Even mining these coins consumes energy resources, producing a carbon footprint. While efforts are made to remedy these flaws, there has been no major outbreak.
The crypto exchanges, payment apps, custodians, and miners take a cut every time somebody makes a trade stand to gain maximum as the market evolves. However, the risk goes far beyond their risk-taking ability for unsophisticated investors with limited knowledge of crypto markets.