Global markets ended on a negative note in April’22 except for Indonesia & UK
The benchmark equity indices Nifty 50 and S&P BSE Sensex started the current fiscal on a weak note. The Nifty 50 declined by 2.1 percent through April 2022, and the S&P BSE Sensex fell by 2.6 percent. The two indices consist of scrips with large market capitalization where the fall was concentrated. Indian markets have shown remarkable resilience compared to other developed and emerging nations.
Inflationary pressures amid a rise in crude oil prices, lower than expected corporate earnings, concerns around Russia’s Ukraine crisis, rising Covid-19 cases in China & faster than expected rate hikes by the U.S. Fed were the key reasons for the market downfall.
Except for Indonesia & UK, all other market indices fell in April’22 & even on a YTD basis. Nasdaq underperformed visa vis all other indices. All-time high inflation, disappointing corporate results by FAANG stocks, and valuation concerns around the tech companies were the main reasons for the fall.
Rise in commodity prices was the key reason for the outperformance of the Indonesian market. Indonesia is the world’s largest coal exporter and even the producer of primary commodities such as oil, palm oil, etc.
Small caps shine; large caps started the fiscal on weaker note
The benchmark equity indices Nifty 50 and S&P BSE Sensex started the current fiscal on a weak note. The Nifty 50 declined by 2.1 percent through April 2022, and the S&P BSE Sensex fell by 2.6 percent. The two indices consist of scrips with large market capitalization where the fall was concentrated. SmallCap & Midcap raked in significant gains in April 2022.
From the valuation perspective, the Mid Caps appear more attractive than Large Caps even as they trade at a 23% premium to the Large Caps. During the 2017 bull phase, Mid Caps traded at a 45% premium to Large Caps. After a recent correction, Mid Caps look attractive at current levels on a relative valuation basis.
The power & utility sector continued their positive momentum & outperformed by a wider margin
On the sectoral front, most of the cyclical & sensitive sectors underperformed visa vis defensive sectors
The power & utility stocks went up on expectation of better earnings amid an increase in summary electricity demand. Most the power utility companies sold a smaller proportion of their total generation on a merchant basis in the short-term market, which fetches better prices when the demand is high. Companies such as Adani Power, Adani green & NLC went up by 51%, 50% & 30% respectively in April 2022.
IT sector got a big hit in April 2022. The sell-off was driven by concerns about a slowdown in the US economy which may affect the US firms spending including their IT budgets. A major correction in Nasdaq IT stocks was also being carried to Indian IT stocks.
Rupee weakens as Fed remains hawkish
The rupee depreciated against the U.S. dollar as the latter had a rapid climb against most currencies in April 2022. This was mirrored in the movement of the US dollar index, which measures the greenback’s strength against a basket of 6 coins of its major trading partners.
Higher crude oil prices, geopolitical uncertainties, and hawkish stance by Fed & FPI outflows were the key reason for the dep reciation.
We expect dollar appreciation to consolidate in May’22 as markets may have factored in higher interest rates. High forex reserves can still offer some comfort to INR.
Events that will decide the current levels are as follows:
Central bank view on interest rate trajectory
Direction of the commodity prices, leading oil
Impact of the sanctions on the global growth
Download the full report to get the complete coverage