6^th March 2022

Month gone by

Nifty ended with 3% cuts for the month of February 2022. External factors continued to wreak havoc as Nifty ended in negative for second straight month. Russian President’s decision to launch a special military operation to demilitarize Ukraine had spooked global and domestic markets. The sanctions on Russia by Western world further jolted the mood. DII continued their buying spree as February 2022 recording one of the highest inflows since March’20 with flows of 42,084 Cr. FII continued be sellers for fifth straight month and sold to the tune of 45,720 Cr in February 2022.

GDP

Real GDP grew 5.4% YoY in 3QFY22. Nominal GDP grew 15.7% YoY in 3QFY22 v/s a contraction of 6.2% YoY in 3QFY21. The Central Statistics Office (CSO) has revised its FY22 real GDP growth estimate downward to 8.9% YoY from 9.2% YoY earlier. This implies that CSO expects real GDP to grow at 4.8% YoY in 4QFY22. Corporate earnings for 3QFY22 largely stood in line as Nifty universe posted 25% YoY earnings growth. Broad-based margin contraction was witnessed owing to sharp RM inflation.

Geo-Politics

The US economy has very little trade with Russia and is least affected by supply disruptions caused by the ongoing invasion. Furthermore, the US is also a large producer of oil & gas and other commodities and benefit at the margin from their rise. India has played a balanced approach by not explicitly siding with any of the major powers involved nor speaking up against them.

Sectoral Performers

In the sectoral space, PSU Banks (-11%), Media (-10%), Real Estate (-9%), Telecom (-8%) and Automobiles (-8%) were the biggest losers, while Metals (+8%) was the only sector to close in green. Since FII were the Sellers most Institutional stocks with FII ownership were at the receiving end of the outflows.

Global Markets

Barring Indonesia (+4%), China (+3%), Korea (+1%), and Brazil (+1%), Feb’22 saw key global markets such as Russia MICEX (-28%), India (-3%), the US (-3%), Japan (-2%), Taiwan (-0%), and the UK (-0%) end lower in local currency terms.

View

Risk is always from the unknow not the know-unknown, this idiom describes investor experience in February 2022 while the focus was on Fed Rate hikes, Mr Putin ensured he stole the show away from them. The Russia-Ukraine conflict has resulted in a global risk-off, with equity markets undergoing intermittent bouts of correction and elevated volatility. The uncertainty over the duration and magnitude of the extant conflict could keep the market jittery and dependent on news flow. Post the recent correction, the Nifty is now trading at discounts to its 10-year average for the first time since Nov’20. The healthy earnings visibility is likely to act as a cushion in an otherwise fragile external situation. We like companies where the earnings visibility remains solid, pricing power is healthy, and the recent correction has led to moderation in valuation. We continue to prefer Leaders, because when the going gets tough, the tough (Leaders) gets going.

Why we Prefer Leaders?

Great Leaders, Don’t Tell you what to do. They show you How its done. Leaders Always behave Differently

Case Study:- Asian Paints Vs Akzo Nobel