Market Update – April 2021

The markets ended the month of March 2021 with minor gains of 1.1%. However, the volatility during the month continued to be high. Concerns of “taper tantrum” and a 2nd wave of Covid-19 cases in India led to cautiousness and bouts of selloffs. However, economic indicators and economic recovery enthused investors, leading to investment interest at every reaction. Broader markets were also flattish with the BSE Mid-cap and BSE Small-cap 250 indices gaining 1% and 0.7% respectively.

The earnings season for the December quarter was one of the best in the last 13 years and the March 21 quarter earnings are also expected to be quite good. Thus, from a scenario of a 25-30% drop in FY21 Nifty 50 earnings projected in April 20, it is now expected that there will be a healthy 13% earnings growth in FY21 Nifty 50 earnings, despite the challenges posed by the Covid-19 pandemic.

An interesting aspect of the markets, particularly over the last 6-8 months has been change in stocks and sectors that have been outperforming. Broader markets have significantly outperformed, with the midcap and smallcap indices doing much better. It has been a combination of massive underperformance from 2017 to 2020, faster growth and deep discount in valuations compared to their historic ratios as well as their large cap peers. Institutional apathy towards them, reflected by almost zero to very low holdings in these stocks, also has been a reason for the strong performance by this segment.

Another interesting trend has been the move away from “Quality at any Price” to “Growth at Reasonable Price”. Here we would like to reproduce a snippet from our earlier report called “Bubble in Quality”. The point we want to reiterate is that quality is always a key factor while investing, but “Buy at any Price” will not work eventually. Also, quality exists even in sectors that maybe cyclical but over a period even they report decent return ratios and are opportunities to invest in.

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Market Update- March 2021

The month of February was yet another strong one for Indian equity markets with the Nifty 50 gaining 6.6%. The broader markets did much better with the BSE Midcap index up 10.5% and BSE Small cap 250 index up 12%. Interest clearly shifted to economy related stocks and cyclicals even as valuations became the dominant driving factor for stocks. On the domestic front, positive sentiments were driven predominantly by expansionist announcements in the Union Budget and strong corporate results for Q3 FY21. Foreign flows continued to be strong with inflows of ~USD 3.5 bn.

Indian economy exited recession as real GDP growth came in marginally positive in 3QFY21, driven by manufacturing, construction, and financial/real estate sectors. The Prime Minister and Finance Minister reiterated privatisation of most government companies in multiple forums. That led to renewed interest in PSU (public sector undertakings) stocks and boosted general investment environment.

Globally, concerns arose towards end of the month led by a sharp increase in US 10-year yields to 1.6% briefly. However, US Federal Reserve chairman Jerome Powell reiterated the Fed will not hike interest rates prematurely and the central bank’s support to the economy will continue despite a brighter outlook.

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