Markets and Macros by TradingQnA: Issue #1
Hey folks, hello and welcome to the first edition of Markets and Macros by TradingQnA. There’s a lot of noise and the really good things get lost in this noise while the nonsensical things go viral :(
The idea with this newsletter is to curate the most interesting charts and articles on the markets, economy and investing.
S&P published the manufacturing and services PMI (Purchasing Managers Index) report for the month of July.
What is PMI?
PMI is an index constructed based on the survey responses of senior purchasing managers at across 400 manufacturing companies. The index is a weighted average of the following five indices: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%). The index varies from 0 to 100. A reading above 50 indicates growth from the previous month and vice versa. PMI gives you a sense of how the executives at large companies are feeling about the economy.
Highlights from July PMI
Indian manufacturing PMI hit the highest growth in 8 months and rose to 56.4 on the back of stronger output growth, better demand, easing supply chain pressures and moderating input costs.
The Services PMI declined to 55.5 from 59.2, the slowest rate of growth in the past four months, on the back of weaker sales growth and inflationary pressures.
Private sector growth declined due to a slowdown in services growth. The composite which is a weighted average of manufacturing and services PMI fell from 58.2 in June to 56.6 in July.
Making sense of core sectors’ headline growth numbers
The 8 core sectors of the Indian economy account for 40.27% of the Index of Industrial Production (IIP). The performance of these sectors gives you an idea of the demand in the economy. For example, the demand for steel and cement can give you a sense of how real estate is doing while electricity demand gives you a sense of the overall economic activity.
The 8 core sectors registered 2 successive months of double-digit growth and the first quarter of 2022-23 has seen output growth of 13.7%, despite the high base of 26% growth in Q1 last year.
These numbers can be misleading since the output during Q1 of 2020-21 was extremely low due to the lockdowns. During the second wave in Q1 of 2021-22 it was still better than the previous year but the output was still on the lower side. These base effects will start fading from July.
To understand this better we must note that the industrial output in May was a mere 1.7% over the pre-pandemic levels and core sectors’ output in June was 8% over 2019.
A worrying fact is that the recovery is still fragmented. Moreover, the rebound momentum seems to be flagging as core output declined 4.08% in June over May 2022 with 7 out of the 8 core sectors (except crude oil) reporting an YoY growth but a declined MoM growth.
This explains why India’s GDP estimates have been revised downwards by various entities like the IMF (7.4%), World Bank (7.5%), Morgan Stanley (7.2%) and Nomura (4.7%); however. Interestingly, the RBI has retained the GDP growth forecast at 7.2%.
Should you invest in Silver?
Back in 2020, when Silver was going up, one of the popular queries on TradingQnA was if there were any Silver ETFs. But does it make sense to invest in silver? Check out this slide from DSP’s Silver ETF presentation. Silver has been far more volatile than equities and has returned far less than gold. Buying and holding silver seems like a terrible idea. A tactical approach where you enter and exit silver seems like a far better approach, much like small caps.
Foreign institutional investors (FIIs) have been net sellers of equities for 10 months straight from October 2021. But domestic Institutional Investors (DIIs) flows have been positive throughout and have almost absorbed most of the FII selling. ETFs have been beneficiaries of this with Rs 20,077 crores inflow despite the benchmark Nifty 50 index being down by over 9.5% in the quarter.
At 4.18 lakh crores at the end of the June 2022 quarter, the total assets under management of ETFs have seen an exponential rise in recent years. Indicating a strong push toward passive investing. SPIVA India 2021 scorecard gives detailed insights on this, summarised here.
In the latest episode of Rainmatter Podcast, we caught up with Ashutosh Datar, co-founder of IndiaDataHub.
IndiaDataHub is an economic and financial data and insights platform. They are doing an amazing job not just aggregating data across numerous sources and also parsing the data to derive meaningful insights. It was started by Ashutosh Datar as a passion project and later evolved into a full-fledged platform. IndiaDataHub also publishes an annual publication called The Data Book which gives rich insights into various aspects of the Indian economy.
In this episode we talk about:
The idea behind IndiaDataHub
What goes into aggregating and sanitizing economic and financial data
Learnings from building the company
The state of the Indian economy post-COVID19, formalisation, household savings, and other highlights from The Data Book.
You can check out the episode along with the transcript here👇
Rainmatter Podcast: Organizing economic and financial data with Ashutosh Datar
“The price of admission to Disney World is long lines, crowds of people, sore feet from all the walking, subpar food and exorbitant ticket prices that defy the laws of inflation each year.
The trade-off for all of that stuff is creating wonderful memories with your family, some good beer at Epcot, a handful of good rollercoasters, ear-to-ear smiles for your kids and a family photo or 12 you can look back on fondly for years to come.
The price of admission to the stock market is bone-crushing volatility, a lumpy return stream along with the pain and anguish that are brought about when you witness a chunk of your life savings evaporate before your eyes.
The trade-off for all of that stuff is long-term returns above the rate of inflation, compounding that can earn you multiples of your initial investment and the greatest wealth-building machine ever created.”
“Bullshit in investing, be it wild over-optimism, deception or fraud, is as old as time, precisely because it is hard to resist the promise of easy returns and to tell the difference between innovation and make-believe.”
That's all from us for this issue. Thank you for reading. Do let us know your feedback in the comments below and share the post if you liked it.
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