Domestic bets resilient as markets rebound since June lows… 


Despite market sentiment being depressed over the past week after another sharp US rate hike, the Sensex is flat year-to-date and has fared much better than major global indices in 2022.

When the Federal Reserve began raising interest rates earlier this year, the Sensex fell 15 percent from its short-term high of 60611.74 on April 4 through mid-June. But just as pundits were predicting the start of a bear market, Indian stocks revived and rebounded from the bottom. Today, despite last week’s drop, Sensex is up a respectable 13 percent from the lows.

BFSI, cars, cement profit

Even as global markets were in turmoil, investor wealth in listed Indian equities, as measured by the combined market value of about 1,100 stocks making up the BSE Allcap Index, is back above the 260 lakh crore mark, a level at which it lies flirted with before witnessed the slide in April. This was possible because a majority, ie 87 percent, of the stocks bounced off their short-term lows in June.

Several sectors have led this phase of the rebound (from mid-June) and the most important among them are Auto, BFSI, Cement, Chemicals, Consumer Goods, Machinery, Metals, Energy, Steel and Trade. Many of these sectors suffered severely during the downturn (April to June), with more than 90 percent of BFSI, cement, metals, telecom and trading stocks falling in value. BFSI is a very important sector in terms of index weight; 91 percent of stocks were sold off in the down phase and 92 percent revived as the recovery gathered momentum.

The biggest gainers since mid-June in these leading sectors include Repco Home Finance (up 98 percent), DFM Foods (85 percent), CEAT (71 percent), Lumax Auto (70 percent), India Cements (65 percent), Parag Milk Foods (54 percent), DCB Bank and RBL Bank (both up 51 percent).

Over 85 percent of large, mid, and small-cap stocks joined the bull party from the June lows, with Vinyl Chemicals, TGV Sraac, and Jyoti Resins topping the small-cap charts, while Metro Brands , Apollo Tires and IDFC First Bank led the mid-cap rebound.

Domestic companies have found greater currency with investors as dark clouds hang around export-oriented companies amid a weak rupee and global macro uncertainties.

Low involvement of IT, Pharma

IT, pharmaceuticals, refining and energy sectors participated less in the recovery phase. Interestingly, over the April-June period, more than 95 percent of stocks in IT and pharmaceuticals were down. For example, Category I IT stocks fell 18 to 36 percent from April to June.

Likewise, Sun Pharma, Divi’s and Cipla fell 11-22 percent. When the tide turned, investors didn’t come back in droves. In fact, from June 17th to September 23rd, the top 4 IT stocks are down 2-7 percent. Likewise, 60 percent of the largest pharmaceutical stocks have outperformed the Sensex in the recovery phase. Fears of a global slowdown have indeed impacted these sectors, which derive their revenue from different regions.

outlook

Will last week be just an aberration and will the rally continue? Nobody can answer that with certainty. However, as India’s growth prospects remain robust, domestic companies could remain more resilient compared to export-oriented ones. With interest rates rising and more rate hikes expected from the RBI in its forthcoming policy, companies with low debt and interest burdens could fare better.

Published on

September 24, 2022



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