For April 2022, the returns on all the indices were in the negative. However, the Nifty returns of -2.07% was worsened in the last couple of days of correction in the Nifty. Early indications from the Q4 results evince signals of pressure in rural sales as well as a sharp compression in operating margins across the board. In addition, the early indications in April 2022 were also that companies have witnessed delays in collection of trade receivables.
The big story of April 2022 was the continued selling by the FPIs. Some respite was expected in FPI selling after they sold over $19 billion in Indian equities in the last 6 months of FY22. While FPI flows in April 2022 began on a positive note, it ended with heavy selling. FPIs sold $2.24 billion of equities in Apr-22 and $2.96 billion across equities and debt.
After the dichotomy of FY22, April was a month of caution
The correction in the Nifty in Apr-22 at -2.07% was not as bad as the FPI selling and the global cues were indicating. In fact, if you cut out the last few days of selling, the Nifty would have actually closed April marginally in the positive. However, there were several pressure points visible as far as the markets were concerned.
Data Source: NSE
Out of the 10 sectors evaluated for April, 5 sectors gave positive returns for the month. Interestingly, 8 sectors outperformed the Nifty while the other 2 sectors underperformed the Nifty. Both the mid-cap and small cap indices did better than the Nifty in Apr-22, although all general indices closed Apr-22 with negative returns.
Let us look at the winning sectors first. Out of the 5 sectors that have given positive returns, 3 sectors actually yielded more than 4% returns in a very tough month. The star of Apr-22 was the FMCG space with returns of 5.25%. Two things worked in favour of the FMCG stocks. Firstly, high inflation normally works in favour of the large FMCG companies with pricing power. Also, FMCG companies managed costs and inventories smartly in Q4.
There were two other sectors that starred in the month of Apr-22. Automobiles gave 4.99% returns while oil & gas sector gave 4.18% returns. In the case of automobiles, the tapering of metal prices helped costs to some extent. However, the chip shortage has curtailed production and that is helping their pricing power. Oil & gas was a result of robust crude prices, which hints at higher GRMs as well as higher inventory translation gains. Reliance was the big driver in Apr-22 as its market cap touched an all-time high of Rs.19 trillion.
Among other gainers, consumer durables gave 1.40% returns and PSU banks 1.21% in Apr-22. If PSU banks were led higher by SBI, the consumer durable saw safe haven buying. Even sectors like private banks, metals and pharma, despite giving negative returns, actually managed to do better than the Nifty in Apr-22.
Big pressure in Apr-22 came from IT sector
The IT index fell -12.93% in Apr-22, one of its worst monthly performances in recent times. After Infosys disappointed the street on operating margins and guidance, the stock pulled down the entire IT index lower. FPI selling was especially evident in frontline IT stocks and the fall could have been much sharper, had it not been for the strong dollar index (DXY).
The other index that did worse than the Nifty in Apr-22 was realty which was down -4.27%. With the hawkishness in markets, pressure on realty stocks is obvious as it is an interest rate sensitive sector. However, solid pre-sales and good retail offtake numbers is holding them.
May 2022 is likely to be decisive for markets. It will indicate if the Fed is willing to really walk the talk. If the Fed lives up to its rhetoric, RBI will have fewer options to choose from. By mid-May, the full picture of Q4 results will also be evident. But the tipping factor for the markets to turn positive would be a revival in FPI buying. That is still elusive!
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