S&P BSE SENSEX declined by -2.5% on a total return basis in the month of April 2022. It has outperformed developed market indices like S&P 500 (-8.71%) and Dow Jones Industrial Average Index (-4.82%). S&P BSE SENSEX has also outperformed MSCI Emerging Market Index (-5.55%). The broader market was much more resilient,
S&P BSE Midcap Index has increased
by 1.33% for the month & S&P BSE Smallcap Index gave a monthly return
of 1.43%. Power sector was the biggest outperformer sector. IT & Telecom
were the laggards
Quantum Long Term Equity Value Fund
(QLTEVF) saw a decline of - 0.6% in its NAV in April 2022. This compares to a -0.56%
decline in its Tier I benchmark S&P BSE 500 & -0.68% decline in its
Tier II Benchmark S&P BSE 200. Cash
in the scheme stood at approximately 6.3% at the end of the month. The
portfolio is valued at 14.1x FY24E consensus earnings vs. the S&P BSE Sensex
valuations of 18.7x FY24E consensus earnings.
FPI outflow
intensity has increased due to geopolitical risks
March-22 has seen FPI outflows of US$ -2.2
bn. With this month’s outflows, FIIs have sold close to US$ 16.8 bn till date
in CY22. DIIs have been net buyers for March 2022 to the tune of US$2.9 bn and
have absorbed a lot of selling pressure from the FIIs
Power supply
is falling short of demand
Power demand is up by 7.9%
y-o-y in FY22. The peak power demand reached 201GW in March 2022, growing 7.7%
y-o-y due to the early onset of summer. In the first 27 days of April,
electricity supplies fell short of demand by 1.88 bn units or 1.67% (worst
since FY16).
India’s current power
shortage can be attributable to coal production not keeping pace with the
growing demand over the last few years – FY21 production levels were similar to
those in FY17. Power demand had been weak in the past 2 years due to reduced
economic activity (Covid-19 lockdown impact). However, with the economy
reopening completely & heatwaves hitting across the country early this year
supply is falling short of demand. Spot prices of power have soared amidst the
current shortage (the government has intervened & capped prices at Rs
12/unit). This deficit is expected to continue till June when the monsoon begins,
and hydro capacities enter the mix.
From a manufacturing
sector perspective, it will not impact production significantly as India has a
history of erratic power supply so Indian manufacturing facilities are designed
with backup power generation capabilities, further 94% of India’s thermal power
generation is based on local sourcing of coal with fixed pricing, therefore,
power prices are not expected to shoot up for long term power agreements.
A sudden Rate hike by RBI
RBI monetary policy committee
meets six times a year. The last MPC meeting was on 6-8 April and the next one
was scheduled on June 6-8 despite such frequent meetings the committee decided
to raise repo rates by 40bp to 4.4% and CRR by 50bp to 4.5% in an unscheduled
meeting. Therefore, the timing of the rate hike came as a big surprise for
markets. The only reason one could fathom for this unscheduled policy action is
RBI’s inclination to raise rates before the US Federal Reserve raised rates (Fed
eventually raised rates by 50 bps).
Q4FY22 & Full
Year FY22 results have been a mixed bag till now
The Q4FY22 results have started to
trickle in & broadly can be considered a mixed bag. The overall demand scenario
looks upbeat for most sectors despite inflationary pressure but maintaining the
operating margins has been a key challenge due rise in input costs. The
companies are taking multiple steps like increasing product prices, cost
control & mix changes to fend off margin pressures, & it should
stabilise in the next few quarters.
RBI’s surprise move on increasing
the repo rates is an acknowledgment of inflation becoming a more important
variable in policy decisions than growth. It will not have an immediate bearing
on growth or inflation, but it is an indication of things to come. These types
of events will come & go multiple times in an investor’s journey to achieving
financial goals & one should not be swayed too much. An equity portfolio stress-tested
for balance sheet strength (lower leverage) & attractive valuations of
investee companies is well suited for this environment. Investors should
stick to their asset allocation plans & use a staggered approach to
increase allocation to equities.
Disclaimer,
Statutory Details & Risk Factors:
The views expressed here in this article / video
are for general information and reading purpose only and do not constitute any
guidelines and recommendations on any course of action to be followed by the
reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering /
communicating any indicative yield on investments made in the scheme(s). The
views are not meant to serve as a professional guide / investment advice /
intended to be an offer or solicitation for the purchase or sale of any
financial product or instrument or mutual fund units for the reader. The
article has been prepared on the basis of publicly available information,
internally developed data and other sources believed to be reliable. Whilst no
action has been solicited based upon the information provided herein, due care has
been taken to ensure that the facts are accurate and views given are fair and
reasonable as on date. Readers of this article should rely on information/data
arising out of their own investigations and advised to seek independent
professional advice and arrive at an informed decision before making any
investments.
Risk Factors: Mutual Fund investments are
subject to market risks, read all scheme related documents carefully.
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