Market Overview – June 2022
H1 2022 was historically poor for global equities; US markets were down more than 20% as of June 2022.
Global economy and markets
- H1 2022 was historically poor for global equities; US markets were down more than 20% as of June 2022.
- Drivers: multi-decade-high inflation, aggressive Federal Reserve tightening and the Russia–Ukraine war.
- US markets rose a sharp 10% in July 2022 on better earnings and cooling commodity prices.
- China’s lockdowns slowed activity, but reopening and policy easing should gradually lift growth.
Indian economy
- India is expected to remain the fastest-growing major economy, at 7.5% in FY23.
- The commodity index has fallen about 20% since early June, suggesting the worst is over.
- New private-sector investment projects rose 17.7% QoQ and 47% YoY.
- GST collections grew 36% in Q1 FY23, and auto sales returned to pre-pandemic levels.
Indian stock markets
- Markets rebounded over six weeks, erasing the YTD decline; the Nifty is now 2% higher YTD.
- FIIs were heavy sellers from October 2021 to June 2022 but turned buyers from July 2022.
- The Nifty trades at about 21x FY23 EPS, above its long-term average.
- Markets are expected to remain range-bound, shifting focus to stock-specific approaches.
Corporate performance (Q1 FY23)
- Nifty revenue grew 43% YoY, but EBITDA only 5% as margins fell about 600 bps.
- Revenue benefited from a low base after the second COVID wave; margins were hit by higher commodity costs.
- Metals, Oil & Gas, Pharma, IT, Cement and Consumer Durables underperformed; Auto, Capital Goods and BFSI beat expectations.
- Management expects sharp margin improvement from Q3 FY23.
Outlook
- 2022 has been volatile, a strong correction in the first five to six months, followed by a strong recovery.
- Active stock selection is key; we have adjusted cash levels, added new stocks and consolidated the portfolio.
- We expect a range-bound market, with movements increasingly stock-specific.
- As Peter Lynch observed, the real money is made by holding stocks for years, not weeks.
Disclaimer. This overview reflects the views of the Care PMS investment team at the time of publication and is for information only. Investments in equities are subject to market risk. Past performance is not indicative of future returns. Please read the disclosure document carefully before investing.
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