Market Update – June 2021

It was an emotionally stressful month for India with record Covid cases totalling almost 400k daily. Shortage of oxygen, ventilators, medicines, and hospital beds led to distress and panic. Amidst negative press on rising Indian cases, concerns on this second wave of the pandemic led to a nervous equity markets during the first half of May. However, with the government pulling its socks, help from private sector, international aid and support from all quarters; the situation started to come under control. Falling cases from the peak numbers helped pick up the sentiments. Experience of US, UK and other countries of sharply dropping cases post mass scale vaccinations and strong international equity markets also helped positiveness. The sharp revival in the second half of the month helped Nifty 50 close up 6%, while the BSE Midcap and BSE Small cap 250 index ended up 7% and 9% respectively. Strong earnings reported by Indian corporates for Q4 FY 21 also helped keep interest levels high.

On the covid front, the number of cases has come down drastically in the country, especially in major cities like Mumbai and Delhi. From a peak of 400k cases a day, India has seen a sharp fall to 200k cases a day by end of May. The US has hit a big vaccine milestone, with half the adult population fully vaccinated, according to CDC records. In India, vaccination numbers are expected to hit 4mn a day in June, almost double of the current run rate and then rise further to 5mn in July and even higher thereon. This has given rise to optimism of a very high percentage of Indian population being vaccinated by the end of 2021. The Indian government expects fresh supply of over 2bn vaccines doses by December 2021, enough to have the entire country vaccinated.

Markets have been very strong over the past few months. Interest from retail investors has only increased and has provided lot of strength to the markets during the Wave 2 of Covid in India. Foreign flows into India have lagged emerging markets on concerns about the impact on Indian economy due to Covid Wave 2. With news flow regarding the pandemic ebbing, we expect the focus shifting back to growth rebounding as well as earnings. Institutional flows also look like returning with zest.

Q4 FY21 earnings have been encouraging and broad based. Companies across sectors have reported very strong financial numbers. The partial lockdowns in Q1 FY22 will surely have some impact. However, a quick opening from June onwards may offset the slowdown, as the underlying demand continues to be very strong. Some risks are also emerging on the inflation front, given the sharp jump in commodity prices. Here also, we expect additional supply to mitigate any further sharp increase in commodity prices.

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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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