| Global equity markets had a very volatile and challenging month of April. Indian markets also followed a similar trajectory, though they did outperform its global peers on the percentage of drawdown. Global risk off due to persistent high inflation and the resultant rising bond yields, prospects of aggressive monetary policy stance by the US Federal Reserve, and the continuing conflict between Russia and Ukraine war were the major reasons for this correction. Possible impact on global supply chain due to stringent lockdowns in China after seeing the surge in Covid-19, added to concerns on operating margin pressures on corporate. The NIFTY 50 ended the month down 2.1% though amidst huge volatility, the broader markets ended flat to positive with S&P BSE Midcap and S&P BSE 250 SmallCap being up 1.3% & 0.4% respectively. Equity markets in India have also reacted in line with the global trends. Rising inflation can impact demand and force central banks to rise rates faster than expected. Input costs inflation and high energy costs are also headwinds both for consumer demand as well as corporate margins. The global equity risk off has also led to unprecedented selling by FIIs, putting pressure on stock prices. However, on the positive side, demand continues to be very strong in the economy. Record income tax and GST collections highlight the inherent strength in the economy. Rural income is expected to be very strong, led by record food grain and agri productions and very high agri commodity prices. Domestic flows into equity continue to be strong and have more than negated the FII outflows, presenting stability to the equity markets. Earnings season has been decent with companies reporting inline numbers but the issue has been on guidance where many corporates have guided for margin pressure in the coming quarters. We are closely monitoring our portfolio companies performance on the earnings front and will not be shy to exit some names where we feel there is a permanent hit to margins. Domestic liquidity continues to be strong and we expect this trend to continue. Foreign flows too should normalise over the next 3-6 months once global inflation starts to temper. 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. |