Commodities led the rally; equity markets remain volatile
| Particulars | Asset Class | Returns for Feb’22 | % Away from the all time high |
| India – Nifty 50 | Equity | -3.10% | -9.10% |
| US – Nasdaq 100 | Equity | -4.60% | -14.10% |
| Crude Oil (USD/Barrel) | Commodity | 10.80% | -30.60% |
| Gold (USD/troy ounce) | Commodity | 2.20% | -8.00% |
Source: CMIE. Considered closing prices for the computation
Reason for equity underperformance over commodity
- Ongoing Russia-Ukraine Crisis
The War between Russia & Ukraine continues. - Rise in commodity prices, mainly crude oil prices
Most of the commodity prices went up by more than 5 percent, but Brent crude oil being the most affected commodity, went up by ~10%. - High Inflation
Consumer price inflation went up to a seven-month high of 6.01 percent in January 2022. It is above RBI’s threshold limit of six percent. - FPI Outflows
FPI sold ~INR.35,000 crore in the equity markets in Feb’22
- Possibility of faster than expected Fed rate hike
Fed & even other central banks may hike the rates given the prevailing geopolitical & inflation risk.
- Widening trade deficit
Trade deficit widened to $176.0 billion as against $88.9 billion during April-Feb 2020-21.
Indian stock markets crash across market capitalization; Overall valuations are little above fair value
| Particulars | Market cap | Returns for Feb’22 | % Away from the all time high | P/E as on 28th Feb’22 |
| Nifty | Large | -3.10% | -9.10% | 21.59 |
| Nifty next 50 | Large | -2.50% | -10.40% | 20.77 |
| Nifty midcap 150 | Midcap | -6.90% | -13.10% | 26.83 |
| Nifty smallcap 250 | Smallcap | -9.40% | -15.10% | 26.16 |
Source: CMIE. Considered closing prices for the computation
- The Russia-Ukraine war initiated another round of sell-offs in an already bearish Indian stock market. The Nifty 50 closed 3.1 percent lower in February 2022 than in January 2022, while the S&P BSE Sensex closed 3 percent lower. The losses were higher in scrips with smaller market capitalization. Large caps showed remarkable resilience as investors chased large companies amid geopolitical tensions.
- From the valuation perspective, midcaps appear more attractive than large caps even though they are trading premium to large caps. The recent spate of IPOs and their successes indicate the market’s appetite for Mid and Small Cap stocks. After a recent correction, the mid & small caps look attractive.
Except for metal, all the other sectoral indices ended in red; cyclical sectors look attractive
| Nifty Indices | Super sector | Returns for Feb’22 | % Away from nifty’s all time high seen since year 2021 |
| Metal | Cyclical | 7.70% | -5.70% |
| Pharma | Defensive | -1.90% | -11.40% |
| Consumption | Defensive | -2.10% | -9.80% |
| IT | Sensitive | -2.80% | -6.80% |
| Energy | Defensive | -3.10% | -3.70% |
| Financial Services | Cyclical | -5.00% | -11.00% |
| Infrastructure | Cyclical | -5.10% | -9.40% |
| Oil & Gas | Energy | -6.30% | -11.50% |
| Auto | Cyclical | -7.50% | -8.40% |
| Realty | Cyclical | -9.10% | -19.50% |
| Media | Cyclical | -10.10% | -13.90% |
Source: CMIE. Considered closing prices for the computation
- Geopolitical tensions between Russia-Ukraine pushed the commodity prices up. And the same pricing uptrend is seen in the metal & mining sector. An increase in demand after the Covid crisis also contributed to the rally. We expect this trend to persist in the medium term.
- As the global growth expectation moderated amid geopolitical tensions, we have started witnessing the profit booking in cyclical stocks & buying in defensive buckets. But the trend may still favor cyclical as the cyclical pockets look cheaper than defensive pockets.
- On a sectoral front ,FPIs sold Rs. 11,000 Cr. & Rs.10,000 Cr. from the IT & banking sector. They have sold Rs.1,800 Cr, Rs.800 Cr, Rs.3,800 Cr. & Rs.2,700 Cr. from automobile, realty, oil gas & insurance sectors.
- FPIs bought Rs.1,300 Cr, Rs.500 Cr, Rs.200 Cr in pharmaceuticals, telecom & coal sectors. We expect cyclical to receive more inflows as the global growth prospect improves.
