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.

You can also download the PDF file by clicking here