● Geo politics: Russia-Ukraine conflict continues longer than anyone’s expectation. This is having prolonged disruption in the global supply chain. This has led to higher prices of international crude oil and other commodities over and above historical levels.

● Inflation and interest rate: RBI monetary policy committee decided to hike the Policy Repo Rate by 50 bps to 4.9% in its June meeting. RBI said it remains focused on a withdrawal of accommodation to ensure that inflation remains within the target while supporting growth. In our view, the performance of the Indian market over the next few months will depend on the trajectory of domestic and global inflation. Any sign of inflation peaking will result in a cap on domestic and global bond yields and a floor to valuations.

● Global slowdown: World Bank has scaled down the global growth projection to 2.9% for 2022, which is nearly half of 2021 at 5.7% and down 120bps from 4.1% projected in Jan’22. We believe India’s growth will also likely be lower than initial estimates by RBI.

● Quarterly earnings: Earnings season will likely be muted this quarter with many sectors likely to report either margin decline or weak demand. Key focus should be on the management commentaries to understand the full impact of demand amid rising raw-material inflation and interest rate environment. We believe full impact of raw-material inflation and subdued demand will be seen in H1FY23.

● Power shortage: India is facing its worst electricity shortage. Coal prices on the other hand have risen significantly leading to higher energy cost for manufacturing companies. The government asked the electricity companies to import coal before monsoon season sets in. Coal India is issuing tenders to suppliers to import coal in heavy quantity.

● GST collection: GST collection continues to be robust at Rs ~1.44lakh crore in the month of June, higher by 56% as against corresponding period in the last year. This comes after the highest collection of Rs 1.68lakh crore that was reported in the month of April 2022 and strong collection of Rs 1.41lakh in the month of May 2022. Robust collection will further boost government fiscal position and will provide cushion to the impact that can be seen from recent tax cut in order to fight inflation.

● Additional taxes to support fiscal position: Government has announced (1) additional excise duty on exports of diesel and gasoline and domestic production of ATF and crude oil and (2) increased import duty on gold. This will likely generate additional tax revenue of Rs 1.3tn for the year on an annualised basis. This will also help to improve government fiscal position.

● Covid: Cases/Vaccinations: Covid cases has risen off-late on national level. However, it seems to be under control so far. Covid related restriction have been relaxed to great extent with economic activities continuing to be at normal pace. India continues to vaccinate at good pace with more than 2/3rd of Indian population partially vaccinated and more than half of the total population fully vaccinated. DCGI has granted emergency use of Covid-19 vaccines for children under the age of 12.