Market Update – June 2022

May 2022 turned out to be one of the most challenging month in recent times for equity investors globally. Volatility was at its peak with risk-off clearly visible. Worries over a global economic slowdown amid aggressive policy tightening, lockdowns in China and ongoing Russia Ukraine conflict; dented investor sentiment. Taking a cue from global trends, Indian equity markets also followed the same trajectory. A strong rally towards the last week of the month did help the NIFTY50 end May down only 3.0%. However this does not reflect the sharp correction in broader markets. S&P BSE Midcap and S&P BSE 250 SmallCap were down by 5.2% & 8.1% respectively, with multiple stocks correcting a sharp 15-30%.

Export ban on wheat, followed by a sharp export duty on steel dented sentiments, as investors started to speculate more such measures across other sectors too. RBI’s out of turn 50 bps rate hike also dented sentiments. During the month, FII selling continued with they pulling out another ~USD 5.2 bn while domestic institutions remained net buyers with a flow ~USD 6.6 bn.

The performance on the corporate earnings front continues to be good. Despite headwinds for some companies/sectors because of sharp increases in raw material costs, energy costs and logistics costs; profit growth for the March 2022 quarter has been buoyant. Led by excellent performance from Private Banks, Consumer, NBFCs, Metals, Automobiles, and Capital Goods, Nifty companies PAT grew by 21% for the March 22 quarter. Oil & Gas, Healthcare, PSU Banks, and Consumer Durables reported earnings below estimates, while Technology and Cement’s profits were in line with market estimates. Overall Nifty earnings growth for FY22 came in at a strong 35%.

We believe that we are entering a phase of consolidation in the markets and expect very minimal correction from these levels. Though the markets might remain range bound in the very near-term, opportunities are opening up in selective stocks. We would be constructive and be investors while focussing on our fundamental philosophy of buying companies with profit growth and where fundamentals merit the valuations they are trading at.

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