Monday, Sep 26, 2022

Nifty, Sensex Don Green Again As Foreign Investors Return, Companies’ Earnings Go Up

The surge in equities was witnessed despite record inflation numbers and a high interest rate regime


The Indian equity benchmarks surged to a four-month high on Thursday, recovering fully from the 52-week low they had hit in June. On the back of strong corporate earnings and the return of foreign flows, Sensex and the Nifty 50 index have climbed over 16 per cent from 52-week low hit on June 17.

With the latest surge, Sensex and Nifty have both turned positive for the year after declining as much as 12.5 per cent since the start of the year until June. 

The surge in equities was witnessed despite record inflation numbers and a high interest rate regime. Analysts say that Indian companies’ strong June-quarter earnings and return of foreign investors amid reasonable valuations turned the tide for Indian markets. 

The Number Game

On the sectoral front, the auto index has been the top gainer so far this year with a gain of 18.16 per cent, data from the National Stock Exchange showed.

Sectoral trends.  - Outlook
Sectoral trends. - Outlook

Mahindra & Mahindra has been at the top of the Nifty 50 basket of shares so far this year with the stock having climbed 51 per cent on the back of robust demand for its latest sports utility vehicle XUV700. Coal India, ITC, NTPC, Bajaj Auto, Eicher Motors, IndusInd Bank and Maruti Suzuki have jumped 20-50 per cent. 

PSU bank, FMCG, private bank, oil and gas, and metal indices have also seen a gain between 4 per cent and 13 per cent the year. 

On the other hand, after outperforming markets for the last two years, the IT stocks seem to be undergoing a phase of correction and are currently down 21 per cent year to date. Consumer durables, realty, healthcare, pharma and media indices are also down 6.5-10 per cent year to date.  Down 15-41 per cent, Tech Mahindra, Wipro, HCL Technologies, Shree Cements, HDFC Life, Divi's Labs, Infosys and BPCL are among the losers.  

Behind The Rally

A sharp drop in commodity and oil prices in international markets has helped bring down raw materials cost for the companies. The price of crude oil, which is used as raw material by many industries, has come down to around $90 per barrel after hitting a high of $139 on supply concerns following the Russia-Ukraine war. 

Domestically, there are expectations of strong consumption demand in the wake of the upcoming festive season which is also likely to boost earnings going ahead and the next two quarters for Indian companies will be very good, says market expert Vijay Chopra of Enoch Ventures. 

"Markets look at forward earnings and the current earnings show that revenues are up but operating profits are slightly lower. Going ahead, with prices of base metals down 30-40 per cent, crude oil down from $135 to $90 and logistics cost also down, this will all result in lower cost of operations which will reflect in higher profits and all this will result into better earnings," says Chopra, adding that it will be tough for Nifty to go down to the 15,100-odd levels that were last seen in June.