Market Overview – June 2022


Global Economy and Stock Markets

The first half of 2022 was historically dismal for global stock markets and there is still some way to go before the storm blows over. Facing a multi-decade high in inflation, aggressive monetary policy tightening by the Federal Reserve and the effects of the Russia-Ukraine war, the US markets were down more than 20% as of June 2022. However, better than expected earnings season and cool-off in commodity prices, resulted in a sharp 10% upmove in July 2022.

Further, the recent lockdowns in China have resulted in economic activity slowing significantly but with reopening as well as monetary and fiscal easing with government announcing a slew of measures, economic growth should slowly pick up pace.

At the beginning of the year, it was unclear how far inflation would surge and how aggressively would central banks respond. However, all these issues are well understood by the markets now. This along with sharp fall in stock markets globally provide some reassurance that markets have accounted for the bad news so far and could recover (as can be seen from the recent upmove) if inflation and growth turn out better than feared earlier.

Indian Economy

Notwithstanding the impact of 3rd wave of COVID and high inflation impacting private consumption, we expect India to remain the fastest growing economy in the world (even as major economies brace for slowdown/recession) and grow at 7.5% in FY23.

Worst seems to be over both as far as economic growth as well as inflation is concerned with commodity index declining around 20% since first week of June. Further, recent macro indicators point towards resilience in India economy with new investments projects by private sector increasing by 17.7% Q-o-Q and 47% Y-o-Y; Automobile sales have improved to pre-pandemic level; revival in monsoon and strong rural income points towards further improvement in rural demand; record high GST collections with 36% growth in GST collections in Q1’23 vs last year etc.

Indian Stock Markets

On the back of improving global/Indian macros as well as better than expected results season, the markets have bounced back smartly in the last 1 ½ month, wiping out its entire YTD decline and Nifty is now trading 2% higher YTD. Inspite of strong selling by FIIs between Oct 21 to June 22 (FIIs have turned buyers from July 22), Indian stock markets are strongly outperforming global markets.

Upside from here on will be a function of stability in global and local macro conditions and continued earnings delivery vs expectations. With this rally, Nifty now trades at ~21x FY23 EPS (above its long-term average). Hence, we expect markets to remain range bound and focus should shift towards stocks specific approach.

Corporate Performance (Q1,’23 results):

While there was a lot of uncertainty w.r.t both global as well as domestic factors, all eyes were fixed on Q1’23 earnings performance. Corporate earnings though poor due to expected margin pressures; were significantly above expectations across most of the sectors. Further, the management commentary also appears positive with expectations of sharp improvement from Q3’23 onwards.

For Nifty in Q1’23, revenues grew by 43% Y-o-Y whereas EBIDTA growth was only 5% as margins come under severe pressure and declined by ~600 bps. Revenue growth Y-o-Y benefitted from low base due to 2nd wave of COVID whereas margins were impacted by higher commodity costs. Metals, Oil & Gas, Pharma, IT, Cement and Consumer Durables reported poor performance whereas Auto & Auto Ancillary, Capital Goods, BFSI, Chemicals, Textiles, Paper, Hospitality etc. reported better than expected performance.

Good monsoon, sharp increase in rural income and a normal festive season after two years should augur well for growth in coming quarters. This along with a sharp fall in commodity costs as well as softening crude oil prices should mean faster than expected improvement in margins from H2 onwards.


2022 has been a tough year so far with lot of uncertainties (both on global as well as domestic level) which has resulted in markets becoming very choppy and volatile. First 5-6 months of the year witnessed strong correction whereas last couple of months have seen equally strong upmove. Hence, active stock selection becomes equally important.

As you must have noticed, we have been actively monitoring the situation and taking lot of actions w.r.t increasing/decreasing the cash position, new stock additions and consolidation of the portfolio. Further, post the recent rally, we expect the market in general to be range bound and movements to be more stock specific.

We would like to end the update with the following quote:

My best stocks have been the third year, the fourth year and the fifth year I have owned them. It’s not third week or the fourth week. People want their money very rapidly. It doesn’t happen

Peter Lynch

Happy Investing!!