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.

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Market Update – August 2021

The markets were generally flat for the month of July, with the Nifty 50 barely ending in the green. However, as has been the recent trend, the broader markets did much better. Buoyed by institutional as well as retail interest, the S&P BSE Midcap ended up ~3% while the S&P BSE 250 Smallcap index recorded a healthy ~8% gain. Amongst sectors, metals and real estate were the best performing while autos & power lost the most. While markets ended flat, it was a volatile month, where investors were tested on negative print from higher inflation numbers, worry over the delta variant of covid and sell-off in Chinese technology stocks.

Q1FY22 quarterly results reported so far have been decent. IT / Commodities largely beat expectations while Financials / Autos / Pharma missed on account of margin pressure as we have been fearing. We continue to monitor the earnings season closely. Going forward, it will be critical to see demand continuing to recover as restrictions related to covid ease. Progress of monsoon which is so far normal would also be important to gauge the continued momentum in rural demand.

Markets have been pretty strong, with the broader markets leading the way. Though earnings have kept pace in most cases, pockets of over enthusiasm are beginning to be seen. Primary markets are in a euphoric zone, with every listing reporting 50%-100% gains on listing. This has led to record oversubscriptions in most Initial Public Offerings (IPOs). The listing of India’s first “start-up” so to say, is a welcome development as it brings in new category of investors, though valuations will always be a topic of debate. More such IPOs are expected in the near future. Although our view continues to remain positive over the long term, investors should expect intermittent sharp volatility in the markets. Careful discretion is advised as also staying away from ‘tip-based” short-term investing.

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Market Update – July 2021

The markets continued their optimistic run with the Nifty 50 Index gaining 0.9% for the month of June. Widespread interest in broader markets was visible with the S&P BSE Midcap and S&P BSE 250 Smallcap indices gaining 3.6% and 6.3% respectively. Hawkish commentary by US Fed lead to a momentary sell-off mid-June but a clarification led to a quick recovery in global markets. Indian Finance Minister announced another set of Covid relief measures with a focus on improving health infrastructure in non-metros and on the stressed segments (Small borrowers, Travel operators etc). In sector trends, IT was the clear winner supported by Accenture’s positive update and INR depreciation of ~INR 2/USD in June.

The second Covid wave in India has been more emotionally distressing. The number of people and families impacted has been much higher, with a quite a few unlucky ones being hospitalized and some who unfortunately died of the virus. Also, unlike the first wave which was predominantly an urban India phenomenon, the second wave was more spread out, with even the smaller towns and villages impacted. Though the restrictions during Covid-2 were localized and less stringent, the spread of the lockdowns across the country would surely lead to some pressure on revenues in Q1FY22.

The upcoming earnings season should be quite interesting. Higher raw material and crude prices will get reflected in lower margins, with higher shipping costs also adding to the pressure for most companies and sectors. At the same time, producers of commodities will report strong margins. Low base for April/June 2020 quarter will still lead to a very handsome year-on-year growth in corporate earnings.

There is surely over optimism building in quite a few small-cap companies, with almost every second company hitting new highs on a daily basis. Twitter and WhatsApp research reports are leading to huge rises in stock prices, as new first time investors lap up easy money making, at least for now. Caution is advised to investors, even as our longer term outlook on the markets remains very optimistic.

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