Which sectors moved equity markets in November 2021?

November saw both the Nifty and Sensex gave up much of their gains. The Nifty gave up 1,600 points from the peak while Sensex gave up 5,000 points from the peak. In Nov-21, while the Nifty gave -3.90% return, the Nifty Mid-Cap index also contracted -3.84%.

December 02, 2021 8:48 IST | India Infoline News Service
The months of Sep-21, Oct-21 and Nov-21 have seen Nifty returns gradually tapering. Nifty Returns fell from 8.69% in Aug-21 to 2.84% in Sep-21 to 0.30% in Oct-21 to a negative (-3.90%) in Nov-21. In Sep-21 Sensex scaled 60,000 and in Oct-21 Nifty scaled past 18,000.

November saw both the Nifty and Sensex gave up much of their gains. The Nifty gave up 1,600 points from the peak while Sensex gave up 5,000 points from the peak. In Nov-21, while the Nifty gave -3.90% return, the Nifty Mid-Cap index also contracted -3.84%.

There were several disconcerting cues in November 2021. Firstly, the Fed has committed to wind down the bond buying program by Jun-22. Secondly, the sharply higher inflation means that the Fed could front-end rate hikes and probably do 4 rate hikes in 2022. Thirdly, the Omicron variant has emerged as a key risk factor.

Data Source: NSE

If the Zomato and Nykaa IPOs were the highpoint of the digital story, Paytm was a return to reality. It was the largest IPO in history at Rs18,300cr. The subscription at 1.89 times was disappointing. Worse still, the stock cracked 41% from the IPO price, before staging a late comeback. However, Paytm is still 20% below the IPO price.

The primary market story has been the highlight of 2021. In October and November, IPOs collected Rs37,000cr with cumulative 2021 IPO collections at a record Rs114,653cr. In the midst of this IPO boom, FPI flows into IPOs have been a redeeming feature, even as they continue to sell heavily in secondary markets.

Concerns over Taper, Inflation, FII Selling, IPO Flows, Omicron and Paytm

The returns of -3.90% on Nifty in Nov-21 shows a consistent tapering of Nifty returns over last 4 months. There were 6 triggers that defined Nov-21.

a) Fed triggered the start of the tapering by $15 billion a month from November and will complete the $120 billion taper by Jun-22. There is even talk of doing it faster.

b) Persistently high inflation in the US meant that the Fed is looking to bring forward rate hikes to Jun-22 and even consider 4 rate hikes in the year 2022.

c) The valuation concerns came to the fore after the quarterly results showed that the input cost pressures were elevated and likely to get worse.

d) FII selling in the secondary markets stood at Rs33,800cr, substantially offset by Rs27,855cr FII inflows into IPOs.

e) The Rs18,300cr Paytm IPO saw tepid response and a sharp price fall post-listing, raising questions over the sanctity of digital IPOs and the IPO rush.

f) The all-new COVID variant, Omicron or B.1.1.529, has emerged as the latest threat to global economies, promised another round of shutdowns and movement restrictions.

Only 2 sectors gave positive returns in Nov-21

For Nov-21, out of the 10 key sectors with significant presence on Nifty, only 2 sectors gave positive returns while 8 gave negative returns. Of course, there 5 sectors that did better than the Nifty during the month of November

Let us look at the positive returns first. The IT sector gave +1.85% returns in November and this rally was triggered by two factors. Firstly, IT emerged as a safe haven for investors in an uncertain environment. Also, at a time when the overall theme was hawkish, IT was likely to be the least impact. Secondly, IT is likely to gain from a strong dollar, which is the most likely outcome of a hawkish monetary note. Consumer durables were marginally in the positive and the story was a defensive play on Indian equities.

Two more defensive stories emerged in the form of Pharma and FMCG. Both these sectors gave negative returns but then they performed better than the Nifty. Pharma sector made late gains in the month after the Omnicron variant threatened to have a cascading effect. For FMCG, it was the top line growth that was attractive, despite input cost pressures.
Data Source: NSE

Metals and rate sensitives underperformed the Nifty in Nov-21

No prizes for guessing; Private banks and PSU banks lost more than 9% in Nov-21. Central bank hawkishness has never been good news for financials as it promises pressure on loan growth, NIMs and losses on their investment portfolio. The other rate sensitive sector to get hit was auto, but here the story was also about production cuts due to microchip shortage. Metals were hit by concerns that an Omnicron driven slowdown would squeeze global metals demand.

Going ahead, Dec-21 is likely to be driven by 3 key factors.

a) The RBI Policy in early Dec-21 and the Fed meet in mid-December will set the tone for liquidity and the rates trajectory.

b) IPO flows will be a critical factor with IPOs worth Rs.40,000 crore expected to hit the primary markets this month. Institutional support will be a key factor.

c) Above all, the one issue that will dominate the markets in Dec-21 will be the Omnicron variant, which promises to be lethal. How the variant is managed, will hold the key.

Dec-21 has generally seen a surge in safe-haven buying at the expense of emerging markets. That is a trend that Indian markets will be wary of.

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