Markets remain buoyant as both NIFTY & SENSEX reclaimed 18,000 & 60,000 levels. For CY21 the NIFTY was up by 24.1% while SEXSEX was up by 22% for the full year. Markets have been quite resilient through the year despite the 2nd covid wave as markets have hardly corrected 10% at any point of time. In 2021 people across the world showed tremendous resilience and fought the 2nd wave of covid and we expect 2022 to bring significant relief & hope for everyone even as we are in the middle of the 3rd wave of covid in India.
FII have been selling heavily in Indian equities over the last nine months barring September 2021. After being net buyers to the tune of Rs.913 cr in September 2021, they have been net sellers to the tune of Rs.1.01 lakh cr in the last three months. They have continued to be net sellers to the tune of Rs.1322 cr till 13th January 2022. At a time when FIIs have continuously been selling, DIIs have driven up liquidity in the markets.
Mutual Funds as an investment avenue won the confidence of investors in 2021 with the industry adding a staggering Rs.7 lakh cr to their asset base during the year on the back of buoyant equity markets and a bunch of large new fund offerings (NFOs). The AUM of the mutual fund industry grew by 24% to an all-time high of Rs.38.45 lakh cr in 2021 by November-end itself, from Rs.31 lakh cr at the end of December 2020. Equity-oriented mutual fund schemes have seen a net inflow of Rs.96,670 cr in the year, marking a multi-fold jump from Rs.9,410 crore of the net inflow seen in 2020. SIPs or Systematic Investment Plans, which have been the bedrock of mutual funds flows for many years now, have seen a collection of Rs.1.14 lakh cr, way higher than Rs.97,000 crore mobilised in 2020. At Rs 5.6 lakh cr, the SIP AUM was nearly a quarter of the AUM of equity MFs and 2% of the total market capitalisation of Indian equities. According to industry estimates, nearly 90% of SIP inflows are deployed in the equity funds.
Gold price amid risk-on sentiment owing to the subsiding impact of the coronavirus pandemic has been the underperformer with decline seen to the tune of over 3%. This negative return on gold for the CY 2021 has come in after 2015. In comparison to the last year’s all time high of ~Rs. 56,200/10 gm, gold price are currently around Rs. 47,850/10 gm, implying a decline of 15% from all time high price. Now, besides the near term dollar, treasury yield and Omicron worries, there have been no major triggers for the gold price and hence it has been moving in a range. Expected rate hikes in 2020 could keep gold prices subdued.
The average annual price of Brent crude oil in 2021 was $71/bbl – the highest in three years. This represented a dramatic recovery after the $40 average in 2020, when an historic collapse in demand during the coronavirus pandemic resulted in an existential threat to oil-producing countries. Crude oil prices soared in 2021 as increasing Covid-19 vaccination rates, loosening pandemic-related restrictions and a growing economy resulted in global oil demand rising faster than supply. The spot price of Brent crude oil, , started the year at $50/bbl and increased to a high of $86/bbl in late October. We expect oil to stay between $65-$85 in 2022.
Inflation in USA jumped at its fastest pace in nearly 40 years in December, a 7% spike from a year earlier that is increasing household expenses, eating into wage gains and heaping pressure on the Federal Reserve to address what has become the biggest threat to the U.S. economy. A rate hike looks a certainty in the near term. High inflation isn’t only a problem for the USA. In the 19 European countries that use the euro currency, inflation rose 5% in December compared with a year earlier, the biggest increase on record. Japan has also come out of recession after decades.
Consumer Price Index inflation (CPI) jumped to 5.59% in December 2021 up from 4.91% in November, due to an unfavorable base effect. Consumer Food Price Index contracted 1.2% m-o-m in December 2021, driven by a 5.4% sequential decline in the vegetable index of the CPI. However, an unfavourable base meant food inflation climbed to 4.05% from 1.87% in November 2021. Non-food, non-fuel inflation, or core inflation, also remained high at 6.1%, unchanged from November 2021. The fuel and light segment rose 10.95%, CPI inflation is likely to rise even higher in the coming months, with the central bank having forecast it would average 5.7% in January-March 2022.
Wholesale prices based inflation decreased to 13.56% in December as against 14.23% in November. The high rate of inflation in December 2021 is primarily due to rise in prices of mineral oils, basic metals, crude petroleum & natural gas, chemicals and chemical products, food products, textile and paper and paper products etc as compared to the corresponding month of the previous year. The food articles segment witnessed a 9.56% surge in December. The fuel and power segment eased to 32.30% in December from 39.81% a month ago. The manufactured products segment rose 10.62% last month down from 11.92% in November.
The Index of Industrial Production (IIP) grew by 1.4% as compared to a degrowth of 1.6% last year. IIP had grown 3.2% in October. Mining sector grew by 5% in the month of November as compared to a contraction of 5.4% in the same month last year. Manufacturing sector growth was weak at 0.9% in the month of November as against degrowth of 1.6% in the same period last year. The industrial growth so far in the fiscal year 2021-22 (April-November) has surged 17.4%, compared to a contraction of (-)15.3% rise in the corresponding period a year ago.
The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) eased to 55.5 in December, from November’s ten-month high of 57.6. The seasonally adjusted India Services Business Activity Index fell to 55.5 in December from 58.1 in November. The latest increase in new orders is centered on the domestic market as new business from abroad fell further. Deterioration in international demand is linked to Covid-19 restrictions, particularly around travelling. Composite PMI Output Index slipped to 56.4 in December from 59.2 in November.
As per Federation of Automobile Dealers Association (FADA), sales of passenger vehicles in December 2021 witnessed a 10.91% drop to 244,639 units. Two-wheeler retail sales too slumped by 19.86% on a YoY basis last month. Sales would have been even higher if not for the global shortage of semi-conductors which has limited production across automakers. Dealers however saw slight ease in vehicle supply thus giving some hope of improvement. Commercial vehicle sales have risen in the first half of the fiscal year, albeit on a low base, due to demand from the e-commerce sector and increased spending on infrastructure projects by the central and state governments.
GST revenue collected in December 2021 was over Rs 1.29 lakh cr, 13% higher than the same month last year. Though the collection was lower than Rs 1.31 lakh cr mopped up in November, December is the sixth month in a row when revenue from goods sold and services rendered stood at over Rs 1 lakh cr. CGST is Rs 22,578 cr, SGST is Rs 28,658 cr, IGST is Rs 69,155 cr (including Rs 37,527 cr collected on import of goods) and cess is Rs 9,389 cr (including Rs 614 cr collected on import of goods).
The Indian economy is expected to grow at 8.3% in the current fiscal and at 8.7% in financial year 2022-23, the World Bank said in its ‘Global Economic Prospects’ report. According to the first advance estimate released by the Ministry of Statistics and Programme Implementation on 8th January, India’s GDP will likely grow by 9.2% in FY22. The projection is lower than the forecast by the Reserve Bank of India (RBI), which had in December said that the GDP growth rate is likely to be 9.5% for the current fiscal. GDP growth rate has been aided by an extremely favorable base effect, with the GDP having contracted by a record 7.3% in FY21 on account of the COVID-19 pandemic.
Finance Minister Nirmala Sitharaman will present the Union Budget 2022 on 1st February 2022, at a time when India is in the middle of the 3rd wave of COVID pandemic. The common man would undoubtedly look up to the budget for various incentives, tax cuts, subsidies, easier credit access and other benefits to cope up with the Covid-19 pandemic. Also expected, the budget will focus on capital spending and growth at the cost of a higher fiscal deficit. A possibility of excise duty reduction on petroleum products cannot be ruled out.
As the frontline Indexes are closing in on all-time highs, we feel proper stock picking will be critical. GST collections have been steady around Rs.1.3 lakh cr/month & GDP & IIP numbers have improved albeit on a low base. High inflation along with high fuel prices remain a concern & a rate hike cannot be ruled out. What the budget holds in stake needs to be seen in another fortnight. We have already overcome the worst of times & expect things to improve from here across the globe. We strongly advise investors to continue their SIPs in equity funds & if possible increase the amount. This is a very good buy on dips market & should be bought in a staggered manner.
Invest before the bull recovers
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Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 14 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.