Indian equity markets posted their worst half-yearly performance since 2020 on the back of weak global as well as domestic trends. Globally, the extended geopolitical conflict between Russia and Ukraine, rising inflation and commodity prices, and concerns regarding aggressive rate hikes by US Fed and global growth kept the sentiment weak. Meanwhile, back home, consistent FII outflows, consequent rate hikes by RBI, and a weak rupee led to a massive correction.
Both benchmark indices Sensex as well as Nifty fell 9 percent in the first half of 2022 (H1FY22), however, the fall in broader indices was sharper. The Nifty Midcap index fell 13 percent during this time while the Nifty Smallcap index crashed over 25 percent in H1FY22.
In the first half of 2022, the benchmark indices had fallen around 15 percent each due to the Covid-19 pandemic and the subsequent lockdown.
"The fall has been precipitated by increasing inflation globally and the corresponding liquidity tightening by most of the major Central Banks. The inflation problem got further accentuated by the Russia - Ukraine crisis accompanied by sanctions on Russia by the US and Europe. In the last six months, sectors that have done well include Auto, Energy, and FMCG, while sectors like Cement, Metals, IT, Pharmacy, Real Estate, and Financial Services have underperformed Nifty," said Nishit Master, Portfolio manager, Axis Securities.
Sectoral Performance
Among sectors, the largest decline was seen in IT, which lost over 28 percent. On the contrary, Nifty Energy surged 11 percent in this weak market on the back of rising crude oil prices. Apart from the energy sector, Nifty Auto also saw positive momentum due to a recovery in demand and an improvement in semiconductor chip supply. The index was up 7 percent for H1FY22. Nifty FMCG also ended in the green in the first half of the year.
Meanwhile, Nifty Realty was the second biggest losing index, down 20 percent followed by pharma and metal which also shed around 15 percent each. Nifty Fin Services lost 11 percent and Bank Nifty declined 6 percent in this period.
Stocks
Only 14 stocks in the Nifty50 gave positive returns in H12022. In the Nifty index, M&M was the top performer advancing over 30 percent in the first half followed by Coal India and ITC which also added over 20 percent each. NTPC, Bajaj Auto, Maruti Suzuki, and Hero Moto also rose in double-digits.
However, Tech Mahindra was the top loser, down 44 percent followed by Wipro, which lost 42 percent in H1FY22. Apart from these two, 22 stocks lost over 10 percent each in this time. Bajaj Finserv, Shree Cement, Hindalco, HCL Tech, and UltraTech cement shed over 25 percent each.
FPI Selling
Foreign investors continued to remain net sellers in June as well, making it 9 continuous months of outflows since October 2021. In H1FY22, they sold Indian equities worth ₹2.15 lakh crore. While since October, this figure is around ₹2.5 lakh crore.
Review and outlook
Talking about the first half of 2022, Aishvarya Dadheech, Fund Manager, Ambit Asset Management said that the Equity market paid a heavy price, due to policy mistakes made by major central banks globally.
"A not-so ‘transient’ inflation hit reality hard, which led to a complete reversal in the central bank’s monetary policy. Bond yield spiked, as most central banks started raising rates and leaned toward quantitative tightening. This alongside unexpected geopolitical (Russia –Ukraine) issues led to a major de-rating in equity market multiples. S&P 500 slumped more than 20 percent in this calendar year so far (worst in the last 50 years) whereas Nifty50 dragged down 9 percent in H1CY22, after a strong CY21 performance," said Dadheech.
The second half of CY22 (H2-CY22) is also likely to remain volatile as per experts.
Master of Axis Securities said that he expects the markets to remain volatile over the next couple of months, by which interest rate, inflation, and growth expectations stabilize globally.
"Post this painful period of a couple of months, we expect the market to start its upward journey slowly and steadily since India continues to remain one of the only few major markets which are growing at a healthy pace. Another positive for India is that Corporate Balance Sheets in India are at very healthy levels as compared to the last few downturns," he added.
Dadheech also agrees.
"Rising interest rates are posing a massive threat to global GDP growth and trade. Talk of the USA & Europe going into recession is gaining pace, which explains the massive drawdown in their respective equity markets. The drastic shift in monetary policy will have far-reaching implications on different asset classes, including equities. It is going to be a difficult battle for the central banks to balance growth and inflation. The equity market will take cues from the outcome of this battle, and hence is expected to remain volatile in the coming months," he noted.
However, Dadheech further stated that the expectation of slow growth is leading to a moderation in commodities prices lately, and some segments of the market feel that inflation is peaking out. If this trend remains secular, it will bring major relief to market participants.
Strategy
According to Dadheech, due to healthy corrections, market valuations have come to a reasonable level (the market is trading at a long-term average of 18 times leading P/E, compared to 21 times a year back), and all froth that got built up in the system has been removed. Hence, the market is giving decent opportunities to long-term investors, he noted.
"Long-term investors should capitalize on this opportunity, and invest in ‘Good & Clean’ businesses, which are unlevered (amid rising interest rates), have robust pricing power (to fight inflation) and ones with a strong balance sheet. Only businesses which deliver on operational performance (higher earnings growth, high ROE) will get rewarded in the coming year. Time is rife, to focus on micro rather than macro, as investments are done in tough times like this, will be more rewarding to investors, as seen in the past," he advised investors.
