India markets gave strong double-digit returns in financial year FY21-22 despite major headwinds. The benchmark Nifty gained 18.9 percent in FY22 in spite of worsening geopolitical tensions between Russia and Ukraine and its resulting surge in crude oil prices. Further, consistent selling by foreign portfolio investors, concerns regarding tighter monetary policy by the US Federal Reserve were also ignored by investors as they continued to support the markets.
Aggressive buying by domestic investors partly helped the markets withstand the obstacles. Domestic institutional investors bought Indian equities worth ₹1.71 lakh crore in the financial year ended March 31.
Broader markets also performed well, with investors accumulating stocks on the back of the recent correction as quality stocks were available at cheaper valuations. Nifty Midcap index and Nifty Smallcap index, both outperformed the benchmark, rising around 25 percent each.
All sectoral indices were in the green for the year.
Among sectors, Nifty Metal surged the most, up 54 percent for the year followed by Nifty Media, which jumped 52 percent in FY22. Meanwhile, Nifty Energy and Nifty IT rallied around 40 percent each. Nifty PSU Bank climbed 27 percent in FY22.
"As we begin the new financial year markets are in uncertain territory. Globally the major headwinds for equity markets are declining liquidity, persistently high inflation in the US and an increasingly hawkish Fed. On the positive side, the negative real returns from fixed income are prompting the increasing tribe of retail investors to pour more money into equity. This strong new trend which is very conspicuous in India has the potential to keep the markets resilient even in the midst of the uncertainty caused by the Ukraine war," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Going ahead, he believes, for FY23 the prospects for financials, IT, telecom, capital goods and pharma look good. FMCG, cement and autos are likely to face margin pressure. Crude at $104 is a short-term positive, he added.
In the Nifty Metal index, all constituents gave positive returns with NALCO, Adani Enterprises, Vedanta, Hindalco, and Tata Steel rising the most, up 50 percent each during the year, lifting the index to the top sectoral performer place.
According to ICICI Securities, going forward, supply fears on the back current geopolitical scenario coupled with rising input costs is likely to support a further uptick in steel prices.
It added that since there are supply-related fears from Russia and Ukraine due to the current geopolitical scenario, Indian steel companies have an opportunity to step up their exports.
Despite only a 4.5 percent rise in the Nifty FMCG index, only 4 constituents were in the red for the year. Bluechips HUL and Britannia fell in double digits, down 14 and 11 percent, respectively in FY22 while Emami and Colgate also gave negative returns. Meanwhile, United Spirits, Radico Khaitan were the top gainers in the index, up over 50 percent each for the year. Varun Beverages, Marico, United Breweries, and Tata Consumer also rose over 20 percent each.
Rising oil prices hit the fast-moving consumer goods sector directly. Inflation and sluggish rural demand may deter the Indian consumer industry from a sharp price hike, brokerage house Jefferies said in a recent note.