Invest Wise: Equity Market in 2nd half of the Year 2022

 

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 Invest Wise: Equity Market in 2^nd half of the Year 2022. 

Equity sentiment has been bearish, resulting in the worst annual start in the year 2022 for equities in 100 years.

The domestic equity market has witnessed a sharp correction in the first half of the year 2022. Benchmark indices BSE Sensex and Nifty50 have dropped more than 10% between January and June 2022. The fall in BSE midcap index has been steeper, and BSE smallcaps index has dropped over 16%. The Reuters poll of 30 equity strategists, conducted 13-24 May 2022, forecast the BSE Sensex to recoup less than half of its recent losses and gain only 3.2% to 56,000 by the end of 2022 from 54,288 points.

We have many challenges to tackle viz. high inflation, restoring the strength of Indian Rupee from its historical fall against US$, bridging the gap of burgeoning trade deficit, restoring the confidence of FPIs, and creating investment friendly atmosphere for FDI- which is a more stable and long-term investment.

Few more rate hikes are expected, making consumer loans dearer, which would adversely impact demand, in concurrence impacting GDP numbers. While we have yet no site on Russia – Ukraine war to end; China- Taiwan war is looming large, which if happens, would drift the already struggling world economy further away from revival.  Being a large importer of oil; the Indian economy is vulnerable to the recent increase in oil prices– which might take some more time to cool, thus, building further pressure on rising inflation, and depreciating Indian Currency.

Indian equities often underperform emerging markets historically in periods of high oil prices. Besides, market valuations are still higher than pre-pandemic levels. Valuations are susceptible to heightened global uncertainties. A combination of a quantitative tightening by a series of rate hikes, leading to a tighter liquidity situation, and commodity inflation would continue to exert pressure on asset prices.

Though the Foreign Portfolio Investment (FPI) outflows from India exceeded USD 30 billion in the first half of 2022, however, during that flight, the domestic investors did a balancing act by investing in Indian equities, showing their confidence in India’s growth story.

The data shows that Mutual Fund companies had 13.46 crore folios in June 2022 compared to 12.95 crore in March 2022, an increase of 51 lakh over the previous three months. The domestic MF industry's average AUM grew 19% to Rs 38.37 trn in FY22. Strong inflows into equity and hybrid schemes coupled with sustained inflows through the Systematic Investment Plan (SIP) contributed to the growth in assets. The assets under management (AUM) for SIP at the end of March 2022 were Rs 5,76,358.30 crore. showing that the retail investors kept investing despite the market's turbulence, to take advantage of Rupee Cost Averaging with the Power of Compounding.

India's GDP growth forecast is projected to be 7 % plus for the year, making it one of the fastest growing economies in the world. GST collections, Credit offtake, and Consumption numbers are showing an uptick. Therefore, the Indian stock market is likely to moderately stabilize in the second half of 2022. A mid-to-high single-digit growth rate is expected for S&P 500 earnings per share (EPS) in 2022, with J.P. Morgan’s estimates at $225 (vs. consensus $229.58).

It would be right to strategically buy the dips and allocate funds in select sectors like IT, banking, and consumer space where valuations have become attractive. Also, in these uncertain times, make Mutual Fund SIPs your preferred vehicle to take exposure in the equity market, by investing in a combination of Top Rated Mutual Fund schemes viz. Large Cap, Mid Cap, Small Cap, Multi-Cap, and Hybrid funds.

 

Author

Ajit Singh

Co-Founder

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