Galloping inflation, the tussle between Russia and Ukraine, the pullout by foreign institutional investors (FIIs) and interest rate hikes by central banks have converged to wipe out Rs 22 lakh crore from the market cap of BSE-listed firms during H1CY22.
Overall, the benchmark BSE Sensex has slipped nearly 9 per cent to 53,018.94 till June 30, 2022, from 58,253.82 on December 31, 2021. Around 80 per cent of the BSE 500 stocks have declined during this period with the NSE Nifty index falling 9 per cent on a year-to-date (YTD) basis.
In the Nifty50 index, Tech Mahindra has slipped the most at 44 per cent, followed by Wipro at 42 per cent and Bajaj Finserv at 33 per cent YTD. The top gainers are Mahindra & Mahindra—up 30 per cent; Coal India—up 27 per cent; and ITC—up 25 per cent.
“The fear of recession in the US amid rate hikes has kept the markets on edge. A recession in the US could be felt in India as well,” says Arijit Malakar, Head of Retail Research at financial services provider Ashika Group. He adds that during stagflation, small companies find it difficult to sustain their momentum due to reduced pricing power. The BSE MidCap and SmallCap indices, too, have declined 13 per cent and 15 per cent, respectively.
Market watchers say investors should zero in on blue chips amid the uncertainty. “Large-cap firms are well-placed to weather such downturns with their healthy balance sheet, strong brand proposition and better pricing power,” Malakar explains.
Sector-wise, the BSE IT index has dived 25 per cent YTD with the Realty, Metal, Healthcare and Telecom indices tanking between 10 and 20 per cent. In contrast, the BSE Power index has outdone major indices with a gain of 16 per cent, while Auto and Oil & Gas indices have gained 8 per cent and 3 per cent, respectively. Meanwhile, the rupee has fallen 6.04 per cent YTD to an all-time low of Rs 78.98 against the dollar till June 30, 2022. FIIs have sold shares worth over Rs 2.15 lakh crore YTD, with robust buying of Rs 2.30 lakh crore by domestic investors capping any downside.
“Risk-off sentiment in the market has led to the dollar’s rise resulting in dollar-denominated commodities declining. Crude oil has remained sticky due to the fear of supply disruption from Russia,” says Amit Gupta, Fund Manager-PMS at ICICI Securities.
“Markets may continue to be tepid during H2CY22. The Fed’s balance sheet reduction plan is negative for emerging markets (EM) including India. It will continue to strengthen the dollar against EM currencies, and likely lead to further FPI outflows,” says G. Chokkalingam, Founder of Equinomics Research and Advisory. He adds that any crash in oil prices and/or reversal of the US Fed’s plan to reduce its balance sheet size would lead to a major recovery in the markets in the second half of the year.
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