10^th June 2022

Month gone by

The Nifty ended 3% lower MoM at 16,585 in May’22 – the second consecutive month of a decline. However, Nifty has remained resilient in CY22YTD despite multiple headwinds. FIIs recorded the eighth consecutive month of outflows at USD4.9b. However, the outflows were more than offset by material DII inflows. In May’22, DIIs posted the highest inflows since Mar’20 at USD6.1b.

Nifty end the month with (-3%), while the Nifty Midcap 150 closed (-2%) and Bse Small cap 100 closed (-7%).

Result Review

While the global and domestic economic environments were grappling with challenges emanating from multiple fronts (geopolitical conflict, surge in energy prices, raw material inflation, chip shortage, monetary tightening, et al), all eyes were fixed on India’s 4QFY22/FY22 earnings performance. Corporate earnings continued to remain healthy in 4QFY22 and instilled a ray of hope, amid the grim situation plagued by the disruptions mentioned above. The Nifty earnings growth of 21% YoY in 4QFY22, came on a high base of 99% growth in 4QFY21. While the aggregate growth appeared impressive, it was hardly broad-based and driven only by three sectors: BFSI, O&G, and Metals. More than half of the incremental growth was steered by BFSI, driven by a modest revival in credit growth and improvement in asset quality trends. Earnings for 4QFY22 were in line with expectations. However, there was a wide divergence between sectors adversely affected by rising raw material prices (Autos, Cement, Consumer Staples and Durables, Specialty Chemicals) and those not directly impacted/benefitted by rising prices (BFSI, Metals, O&G and Technology). Private Banks’ asset quality continued to improve with moderation in slippages, credit costs and NPA ratios, while the restructured book also declined sequentially.

Geo-Politics

Russia’s invasion of Ukraine creates near-term risks for markets. The immediate threat comes from high energy prices, rising food prices and disrupted supply chains. The longer-term issues are a new cold war between Russia and the West, increased military spending and a further blow to globalization. The war is a defining moment for Europe, which now needs to unwind decades of Russian energy dependence, accelerate its sustainable energy transition and rebuild military capability.

Sectoral Performers

In the sectoral space, Autos (+5%), and Consumer (+1%) closed higher, while Metals (-16%), Utilities (-11%), Oil & Gas (-10%), Real Estate (-7%) were the biggest losers.

Global Markets

Volatile that’s how Equity markets have oscillated in CY’22 marred by geopolitical tensions to start with, followed by pain of inflation and start of tightening by most central bankers. In May’22, key global markets such as China (+5%), Brazil (+3%), Japan (+2%), Taiwan (+1%), and the UK (+1%) closed higher in local currency terms. However, Russia (-7%), India (-3%), and Indonesia (-1%) ended lower in local currency.

View

At the start of the year, we expected central bankers to start rising rates and tighten the free-flowing liquidity in the global markets which had resulted in inflationary trends in many categories. Global markets were also trying to align themselves with this new normal, but the geopolitical tension between Ukraine and Russia has created inflation in utilities for which the world was not prepared. Most inflation seems to be supply disruption lead and not demand driven and can cool off much faster than then general expectations. In current global scenario India looks resilient and well prepared at all levels from geo politics, policy, corporate earnings and domestic consumption. The result season gone by has been proof of our resilience and correction in markets at time when earnings are strong is providing investors opportunity to add good companies at great prices. The investors chief problem and his worst enemy is likely to be himself. In the end, how your investments behave is less important than how you behave.