Market Update – July 2022

June 2022 was another challenging month for investors globally as markets remained concerned over high inflation, rising interest rates and its impact on global demand. With fears of recession / stagflation in focus, key benchmark indices globally fell in a 6-13% range. Indian equity markets also followed the weak sentiments, with NIFTY50 down 4.9% and S&P BSE Midcap and S&P BSE Small cap down by 6.2% & 6.4% respectively. Broader market correction has been more widespread with stocks down 15-40% in this correction phase.

On a reported basis, NIFTY50 Q1FY23 sales growth is expected to show sales growth of 32% while PAT growth is expected to ~20%. Cost pressures is likely to be seen at multiple sector/company levels due to high input costs. Key focus would be on management commentary on overall demand environment in the backdrop of elevated inflation, price & interest rate hikes and slowing global growth. If the demand outlook remains strong, then we expect markets won’t be too worried on the margin slide as commodities have started to cool off. After a sharp rise, prices of commodities across the board have started to correct meaningfully. Metals, Agri commodities as well as crude have come down substantially from their recent peak. The Bloomberg Commodity Index is down around 20% from its recent high in less than a month and makes us confident that the worst probably on inflation is behind us..

The last 2-3 months have been quite challenging for equity investors globally. Indian equities have also seen a sharp drawdown across the board and slightly more in the mid and small cap space. Apart from the macroeconomic concerns of rising inflation, rising interest rates, fear of growth slowdown and pressure on corporate profit margins; the record selling from FPIs has also been a major cause of this deep correction. Having said that, the situation on the ground continues to be optimistic.

From Indian equities perspective, the near-term will continue to be volatile. However, we would recommend that investors make fresh investments over the next couple of months. While returns won’t be linear, we are confident that healthy mid teen benchmark earnings CAGR over FY22-25 will eventually get reflected in market returns.

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