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Which sectors moved equity markets in May 2022?

Auto, FMCG generated highest returns among all the sectors in May 2022

June 01, 2022 9:11 IST | India Infoline News Service
In a way, it can be said that May 2022 was a month of surprises. The big event in early May was the unscheduled MPC meet called by the RBI. This meeting was called amidst rising inflation and ended up hiking repo rates by 40 bps and CRR by 50 bps. In a way, the RBI pre-empted the surprise factor that the Fed could create in the Indian markets with its hawkish stance. Of course, the Fed did eventually raise rates by 50 bps in May 2022.

Till April 2022, the reaction of the RBI to the Fed hawkishness appeared ambiguous. The May MPC left no doubts in the markets that the RBI was going all guns blazing after inflation. Indian government did not just stop at monetary measures. They amplified the monetary measures with fiscal measures like export duties on critical exports, export quotas on major raw materials and import duty cuts where landed costs were too high.

There was no respite in FPI selling in May 2022 as another $5.86 billion of equities got sold by FPIs. Of course, that was more than compensated by the domestic inflows in May 2022, but the damage was visible in the rupee value. Towards the end of May 2022, there was a bounce in the rate sensitives and that was the key positive for markets in May 2022.

Late recovery in markets, changes the narrative

In three trading sessions in the month (between 27th May and 30th May), the Nifty gained 800 points and the Sensex over 2,100 points. These 3 sessions changed the narrative for the markets and made the fall less intense. As the battle against inflation intensified, the first signals came from the US PCE inflation which tapered by 30 bps. Markets were impressed by the fact that despite inflation concerns, the Fed and the RBI were extremely sensitive to growth impulses. That gave a late boost. Now for the May macro triggers.
  1. Crude at $123/bbl as of the end of May shows a clear hardening of Brent in May compared to April. Oil prices climbed on EU deciding to ban Russian oil imports to the tune of 90% by December 2022. OPEC also suggested that Russia may be ejected from the OPEC Plus consortium in setting oil prices.
  2. There was no let-up in selling by the FPIs. If the FPI selling was about $3 billion in April, it worsened to $5.86 billion in the month of May. Clearly, the hawkishness of the RBI was raising concerns that cost of funds would again go up and was almost reminiscent of the situation in 2018. It had made a lot of financials highly vulnerable.
  3. Fed hiked rates by 50 bps in May. In June another 50-75 bps rate hikes combined with $47.50 billion of bond book unwinding looks on the cards. That will pressure cost of funds and liquidity in the system. Fed is now talking about another 200 bps hike in 2022, but could taper after that. It remains to be seen how much the Fed can walk its talk.
  4. Inflation continued to remain the bugbear of global economies. India CPI inflation came in at 7.79% for April 2022 and WPI inflation at 15.08%. US inflation tapered just 20 bps in April 2022 to 8.3%. However, EU inflation for May has touched a record 8.3%. Clearly, the big fight against inflation is unlikely to go away in a hurry.
  5. As the Indian companies complete their Q4 Results season, the good news is that sales and profits are higher. But, most of these gains came from commodities like metals and upstream oil. Working capital constraints were the big challenge in Q4FY22.
  6. Towards the close of May, 2 factors worked in India’s favour. Firstly, China relaxed COVID restrictions and secondly, markets began to appreciate the fight against inflation. Both could have positive repercussions in June 2022.
A sea of red, but autos and FMCG shine in May 2022

Here is a quick look at how the key sectors performed in May 2022. Out of the 10 sectors evaluated for May 2022, only 2 sectors gave positive returns. While 3 sectors outperformed the Nifty, there were 7 sectors that underperformed the Nifty. Among general indices, while Nifty was down -3.03%, Mid Cap index was down -4.72% and Small Cap down -10.22%.



Data Source: NSE

There were two sectors that gave positive returns in the month of May 2022, despite heavy selling in the markets overall. Autos were the stars of the month giving 4.59% returns while FMCG sector gave 1.33% in the month of May 2022. FMCG was largely about a safe defensive bet in the markets. Most FMCG stocks had corrected sharply amidst the input cost challenge. The larger FMCG stocks with pricing power managed to stage a bounce, which explains the positive returns.

The big star gainer of the month with 4.59% returns was autos. To an extent, it aggressively participated in the rate sensitive rally in the last week of the month. But through the month, autos had held on largely due to a return to normalcy as auto companies gradually overcame constraints like the chip shortage, weak demand etc.

Nifty got its real boost from the private banks, which were down just about -1.17% in May. Private banks have the highest weightage in the Nifty and most banks gave good quarterly results on the back of lower provisioning. The late boost came from markets rewiring the financials positively as the inflation control measures were supposed to bear fruit.

In May 22, the big pressure point was metals

If IT index was the pressure point in April with -12.93% returns; in May 2022 it was about metals which corrected -15.72%. The sell-off in metals was worsened by the government imposing export duties on iron ore and steel pellets, which hit heavyweights like Tata Steel, JSW Steel and Hindalco badly. Consumer durables, IT, PSU Banks and healthcare were among the other major losers in the month of May 2022. Clearly pressure was intense amidst global uncertainty and fears that persistent rate hikes could result in a recession.

May was clearly dominated by selling but the good news is the sudden change in sentiments in the last week. How much this sustains, will only be known in June 2022.

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