Market Update – November 2021

The month of October started strong for Indian markets, continuing the trend seen in September. However, in a volatile environment, all gains of the first half of the month were given away and markets ended almost flat for the month. Nifty 50 marginally outperformed broader markets, but huge disparity in stock performance was seen in the broader markets. Globally too markets were volatile but stable. Concern over China’s debt-ridden major property developer Evergrande subsided, on meeting their interest payment due date and aided global sentiments.

Results season so far has been a mixed bag. With input prices rising, many companies were unable to completely pass on this and bore the impact on its margins while some benefitted from it. However, revenue growth has been very strong, negating the margin compression and aiding a strong profit growth. This was in line with our expectations that we have been highlighting in our recent past communications.

Led by pent up demand and ease of covid restrictions, all lead indicators are pointing towards a bumper demand in the forthcoming festive season and companies seem to be well prepared to capitalize on this. We feel there is an upside risk to the demand, but at the same time there can be margin/earnings surprises owing to the input price inflation, energy costs and logistics costs. With a slew of large IPO lined up, near term liquidity is likely to get absorbed by the primary markets. These factors are near term temporary headwinds. We also believe that any interest rates rise would at worst be marginal and gradual and would not impact equity markets meaningfully. With growth tailwinds and positive earnings trajectory, we continue to be optimistic on the markets.

You can also download the PDF file by clicking here

Market Update – October 2021

Indian equity markets ended September on a positive note and hit fresh record highs. Post the divergent performance in August between the broader market and headline indices, September witnessed gains across market cap. While Nifty 50 gained ~3%, S&P BSE Midcap and S&P BSE 250 Small cap indices also participated, gaining 6% each. News flow coming from US Federal Reserve meeting and a potential debt blowout in China kept the markets busy as well as cautious.

Debt crisis pertaining to one of the Chinese property developers, Evergrande, with its liabilities mounting to ~USD 300 billion surfaced, which led markets to worry about a possible contagion effect. However, the risk quickly receded with expectations of support from the Chinese government. Also, hints of starting Quantitative Easing (QE) tapering soon by US Federal Reserve also had some but not meaningful impact on global capital markets. The strength in US Dollar also led to some concerns, particularly in commodity stocks.

There has been significant momentum in the markets over the last few months which is also led by decent sectoral churn. What we are witnessing now is that laggard sectors of the last few years are now participating, including PSUs and Real Estate sector. We keep ourselves away from chasing momentum, while continuing to focus on businesses with sustainable profitability and decent ROEs. Fundamentals continue to remain strong even as we expect a very strong festive season led demand. We do expect near term volatility led by global or local news flow to continue, but corrections are expected to be short and swift.

You can also download the PDF file by clicking here

Market Update – September 2021

The trend in markets in August was significantly different from what
was seen over the past few months. For a change, the large caps
caught up and significantly outperformed the broader markets.
Divergence was strong, with the Nifty 50 logging in a sharp ~9% gain
while on the other hand, S&P BSE 250 Smallcap reporting a ~3%
decline. This ~12% divergence in a month between the large-cap vs
small cap was the highlight for the month.

This catch-up was long coming, given the huge surge seen in the broader markets in 2021 YTD and significant outperformance over the large caps. Renewed Foreign Portfolio Investor interests, particularly in index stocks, also led to large caps doing well.

Indian markets witnessed net Foreign Portfolio Investment inflows
of ~USD 2 billion for the month of August 2021, whereas Domestic
Institutional Investors (DII) net inflows were ~USD 4 billion. Domestic
investor interest continues to be strong, with a domestic mutual fund
garnering a record INR 14,500 crores in a New Fund Offering (NFO).

On the global front, the worry over tapering uncertainties too seems
to have abated. US FED has been very clear in its stance that liquidity
tapering if any will be gradual and that rate hikes are not coming. We
believe that modest rate hikes are already expected and priced in
and therefore the impact, if any, will be very moderate.

You can also download the PDF file by clicking here