Positive Negative Neutral
|Inflation (CPI - India)
|Inflation reached 7.79% in Apr, 2022, above RBI's upper tolerance level of 6%. High food inflation and high comodity prices were the main contributor.
|Brent crude prices increased by by 10% In May, 2022
|Currency INR USD
|INR depreciated by 1.4% in May, 2022
|GDP growth of India is reported at 8.7%, making India the fastest growing major economy.
|FIIs were Net-Sellers of Indian equities to the tune of Rs.39,993 Cr in May, 2022.
|DIIs poured Rs.50,836 Cr into Indian equities in May, 2022
|Yield moved from 7.415% to 7.14% in May, 2022 end.
|Record high GST collection of Rs.1.4 Lakh Cr in May, 2022
|Global - Inflation
|In USA, inflation is 8.3% in Apr, 2022 slows from previous month 8.5% which was the highest reading in past 40 years.
|Q4 FY22 Earnings Session
|Earnings upgraded for 42% of Nifty 50 companies whereas downgraded for 26% companies and remaining 32% remains in-line ( as per Motilal Oswal research report)
|It is 27.44% off from peak of the market in Oct, 2021
|It is 8.42% off from peak of the market in Oct, 2021
|Valuations-Market cap to GDP Ratio
|Current market cap to GDP ratio is at 98%. It is above its long-term average of 81% but below global average of 124%.
High Risk Moderate Risk Low Risk
|RISK FOR EQUITIES
|LEVEL OF RISK
|Rising Oil prices & Commodity inflation
|FII's being a Net-Seller
|US FED - Tightening
|US FED - Interest rate hike
|RBI-Sucking out liquidity
EVENTS, NATURE OF IMPACT & ANALYSIS
Indian Equities underperform Global Equities in May 2022 but resilient in CY 2022
Indian Equity market underperformed the major global equity markets in May, 2022.
Remarks: The MoM underperformance was due to heavy selling by FIIs on Banking and IT stocks which together contribute more than 50% to the Nifty 50. Furthermore, cyclical sectors like Cement, Construction materials etc. further dragged the market down though their contribution is less than 10% to the index.
Despite the underperformance last month, Indian Equity outperformed major economies year-to-date. The performance is mainly due to the resilience shown by DIIs. DII inflows have outpaced the outflow led by FIIs. The resilience is backed by visibility in economic growth. India has been the fastest growing economy despite the global noise on geopolitical issues, inflation, interest rates, etc.
IPO Performance – 45% of the recent IPOs are trading below the offer price
The euphoric IPO season so far has been unfavourable for investors. Many over-hyped IPOs have collapsed by 40%-60% from offer price.
Remarks: It is a good time to look back and analyse the euphoric time prevalent 6-12 months back when IPOs were up everywhere. The rationales like asset light model, total addressable market, data consolidation, etc. were key parameters of being bullish on technology/platform businesses.
There was no near-term visibility of cashflows, profitability and earnings from most of these businesses, even while the original rationales are still present. Investors have sold the stocks heavily in past few months leading to a massive damage in their business valuations.
During Jun-Sep-2021, IPOs were coming up with absurd valuations. Such valuations are seen mostly at a peak of the market. This pattern has played out exactly like the year 2007 and 2017.
FIIs continue to Sell while DIIs poured in the highest since Mar 2020
FIIs have been selling since the past 8 months. They have sold to the tune of Rs.39,993Cr. in May 2022.
Remarks: Since Oct 2021, FIIs have cumulatively sold Rs.2.05 Lakh Cr. Indian equity. Despite massive outflows by FIIs, markets have corrected by only 10%-15% from the peak since DIIs have shown resilience and poured more than Rs.2.50 Lakh Cr. in the same period. They have mostly matched and in some months even outpaced the outflows by FIIs mainly due to increase in monthly SIPs in mutual fund. Till now, DIIs are holding the market, however FII inflow will be a must for any upward movement from here.
India’s GDP is Back on Track
India’s nominal GDP has grown by 19.5% whereas, real GDP has grown 8.7% in FY 2021-22, 1.5% up from FY2019-20 level.
Remarks: Our GDP level surpassed the pre-covid level in FY2019-20 on an aggregate basis. It has been driven mainly by consumption and export-led growth. However, the growth in consumption is expected to be muted in FY2022-23 due to the inflation numbers. Hence the growth will need to be driven by CapEx and fixed investment spending by Govt.
This has already been started in Q4 FY2021-22 which accelerated to 5.1% YoY in Q4 FY2021-22 from 2.1% in the previous quarter. Fixed investment is the key for economic recovery as the exports will lose momentum with a deceleration in US and EU economies.
Q4 FY 2021-22 Result – 35% EPS Growth, Highest ever since FY2004
Nifty ends FY 2021-22 with 35% EPS growth, the highest ever in the last two decades.
Remarks: Despite both the global and domestic economies struggling with geopolitical issues, high energy prices, high raw material costs, chip shortages, interest rate hikes, tapering etc., corporate earnings remained healthy in Q4FY21-22. It was driven by BFSI, Oil & Gas and Metals. More than half of the incremental growth was steered by BFSI, driven by revival in credit growth and improvement in asset quality trends.
Private banks, Consumer Goods, NBFCs, Metals, Auto and capital goods reported higher PAT growth than expected whereas, Oil & Gas, Healthcare, PSU Banks, and consumer durables reported PAT below estimates. This extraordinary growth in EPS may not be sustainable and we must watch out for earnings downgrade ahead.
What you should do. And should not.
Please remember investing is mostly backing quality businesses run by quality managements that offer a runway for strong cash flow growth, earnings potential, and long-term prospects. Buying them at a “reasonable” price with an eye on the returns is important. Stay invested, stay disciplined and secure your returns. We have prepared a sound long term holistic financial plan for you based on your risk profile, defined your financial goals along with you… did an asset allocation (with contingency plans built in) with you. We believe we are in the best objective position to help navigate the vagaries of the market.