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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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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