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Which sectors moved equity markets in April 2022?

The markets are sceptical ahead of the Q4 results and the hawkish notes coming in from the US Federal Reserve.

May 02, 2022 2:38 IST | India Infoline News Service
The new fiscal year started off on a cautious note. The markets are sceptical ahead of the Q4 results and the hawkish notes coming in from the US Federal Reserve. The Fed looks poised to hike rates by 50 bps in May 2022 and then add another 200 bps of rate hikes before the end of calendar 2022. That is a lot of hawkishness and was indicated by no less than the Fed Chair, Jerome Powell in his IMF Spring 2022 address.

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.
  1. Crude at $107/bbl as of the end of April is nowhere as bad as the levels of $139/bbl that Brent had touched in March. However, supply chain constraints are still continuing and the only factor that has kept oil lower is the concern over demand slowdown in China.
  2. There was no let-up in selling by the FPIs. They sold Rs140,010cr in FY22. April began on a positive note but selling in frontline IT stocks gathered momentum from the second week. For Apr-22 FPI selling was Rs17,144cr in equities and Rs22,688cr overall.
  3. Fed has almost confirmed 50 bps hike in May-22 and another 200 bps by end of 2022. It also plans to amplify the impact with bond book unwinding from May itself. RBI has not reacted and remains moderately dovish, although it cannot risk divergence for too long.
  4. The one factor common to all economies today is inflation. If US inflation touched 8.5% in Mar-22, India CPI inflation scaled 6.95%. The impact of relentless WPI inflation is visible in the quarterly numbers as EBITDA margins remained under pressure.
  5. The first set of companies that have announced results have shown some distinct trends in Q4. Despite efficiency measures, EBITDA margins are under pressure. In addition, the combination of chip shortage and weak rural sales has hit the top line also in Q4. The stress is underlined by a spike in trade receivables impacting cash flows in most cases.
  6. Globally, there are two diverse factors at play. The Russia Ukraine war shows no signs of slowing and that is keeping oil on tenterhooks. At the same time, China’s COVID lock-down threatens to slow global growth. Oil prices will depend on which factor predominates, but neither of them is positive for the Indian economy.
Some sectors outperformed despite a tough Apr-22



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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