Indian markets declined around 2 percent in the month of April 2022 amid volatility on the back of weak global cues, hawkish US Federal comments on aggressive rate hike concerns, and surging inflation.
Sectoral indices were mixed during the month. While the Nifty IT index lost the most, down 13 percent, the Nifty Energy index surged the most, up 11 percent for the month.
Meanwhile, among other sectors, the Nifty Realty index lost 4 percent, Nifty Finance lost 3 percent and Nifty Bank was down 1 percent. However, Nifty FMCG and Nifty Auto were in the green, up 5 percent each for the month. Nifty PSU Bank also rose 1 percent in this period.
IT stocks have been under pressure on the back of headwinds like weak Q4 earnings, and Russia-Ukraine tensions. on the back of headwinds like weak Q4 earnings, and Russia-Ukraine tensions.
The underperformance comes amid concerns over the margin and demand outlook which can be impacted due to the ongoing geopolitical issues. Of late, IT stocks have seen a strong selloff mainly disappointed going by the results declared. As per brokerage firm Dolat Capital Market, while commentary for most IT companies still remains upbeat with ‘best of the decade growth prospects’, there will be spillover impact of the current geopolitical situation has not been incorporated in the guidance.
All stock in the Nifty IT index has also given negative returns during the month with L&T Infotech and L&T Tech Services falling the most over 20 percent each. Meanwhile, Infosys, MindTree, Wipro, Mphasis, and Tech Mahindra have lost over 15 percent each during the month. HCL Tech, Coforge and TCS were also down between 6 percent and 10 percent in this period.
Meanwhile, the best performing sector for this period was the Nifty Energy sector on the back of rising crude oil prices. The sector rose 11 percent with 6 of the 10 stocks in the index in the green for the month.
Adani Green Energy rallied 45 percent during the month lifting the index followed by Adani Transmission, up 12 percent. Meanwhile, NTPC added nearly 10 percent, RIL rose over 5 percent and Indian oil and PowerGrid were up 2.5 and 3 percent, respectively.
According to a recent report by JPMorgan, the "energy sector remains its highest conviction investment as commodity prices continue to rise and the underlying fundamentals of companies improve."
The investment bank noted that a combination of rapid earnings growth and re-ratings for key multiples will help drive further upside in the sector.
"Energy is the only sector that is seeing quality, growth, and momentum scores improve simultaneously while maintaining an attractive value and income profile," the report said, adding that current estimates are conservative and understate the strong macro fundamentals going forward.
And while demand remains elevated for commodities, supply could stay constrained due to a rising cost of capital and pressure from ESG policies, it stated.
"In our view, fundamentals and valuation make a compelling case for the sector and we expect dips to be bought from broadening investor base including energy companies revamping share repurchases," JPMorgan concluded.
