Talking Points This Week: Deals... Struck And Awaited

Holding Steady On Domestic Fund Flows

Stocks in Hong Kong attracted record inflows via exchange-traded funds in March, as retail investors took advantage of a historic dip and an ensuing rebound to bet on further gains. Some 60 equity ETFs tracking the city’s indexes added $4.4 billion since end-February, the most in monthly data compiled by Bloomberg going back to 2000.

This is symptomatic of what the data could reveal about the domestic equity investments in India for March. While the final data is not yet out, the belief in the market is that local fund flow numbers into equity funds would come in strong, as described by Nimesh Shah of ICICI Prudential in the Mutual Fund Show. Domestic flows will be needed for the Indian market, considering that FIIs don't seem to be in a rush to come back after recent exits. Sanjay Mookim of JP Morgan sums it up when he says that while FIIs are a heterogeneous community and it is, therefore, difficult to give one trend to describe their behaviour. One analysis of a trend line of flows suggests that the FII selling could abate after an outflow of another $10 billion. Normally, a number like ten billion may stump everyone, but the way Indian markets have digested the outflows due to the retail inflows, it does not cause as much of a flutter.

Commodity Costs Softening?

After a record quarter of sorts, are we in for some softening of commodity prices? Crude prices cooled a bit this week, but the commodity remains notoriously unpredictable. What is going to be tough to digest is the rise in the price of natural gas under the administrative price mechanism. The APM price will hit consumers and industrial users alike. However, there is some silver lining as well, particularly for industries that have been bearing the brunt of high input costs. According to reports, India is 'leaning toward' continuing to import coking coal from Russia, and Russia has even offered India crude at a large discount to pre-conflict prices. In days of unpredictable, volatile, and generally elevated input cost pressures, this might be a shot in the arm.

The other good news for steel millers is that commodity costs are starting to come off, as per Seshagiri Rao of JSW Steel. Coking coal is down from $670 per tonne to $540 per tonne. It’s the same story for shipping freights, according to Rao, who expects the “balancing” to help commodity prices fall more and gradually normalise. Most industry watchers would be hoping he gets proven right, for the margins, which have been hit badly in Q4FY22, might well do with some respite, since adequate price hikes may not be possible without some demand destruction.