Equity Market Recap
Indian equity markets had that were analogous to most other global markets in February on the back of gradual improving economic outlook. Better than expected quarterly earning numbers, positive economic data and optimism regarding the roll out of the COVID-19 vaccine program also boosted market sentiments.
Investors received the Government’s FY22 Union Budget positively, celebrating a low tax budget when the market expectation was that there would be a bevy of COVID taxes. The policy stance of the Monetary Policy Committee, better than expected macroeconomic numbers and strong corporate earning numbers also generated positive sentiment.
Renewed concerns over the COVID-19 pandemic amid reports of increased infections and impositions of restrictions in parts of the country restricted the sentiment upside.
The Sensex breached the 52,000 mark and the Nifty 50 surpassed 15,300 mark for the first time during the month only to retreat later.
Newsflow and Market Performance
Indian markets were weighed down in relation to global cues, but outperformed relative to global markers after the release of the Union budget. Domestically, the focus was on the December quarterly earnings. Adjusted net profit after taxes for the BSE All Cap index (around 840 stocks) grew at 33% year over year in 3QFY21.
Foreign Institutional Investors (FII) recorded net inflows of US $4.1 billion into Indian equities in February, the fifth consecutive month of inflows.
As long as a gradual increase in yields is driven by growth and moderate inflation, this is is a positive sign for Equities. Hence, the rise in yields does not alter our medium or long term outlook on the market and we continue to have a positive bias on Equities.
Overall, given that we are in the early stages of an economic recovery, monetary and fiscal policy remains supportive and thus the earnings rebound has been sharp. Relative valuations are still favourable, and FII flows continue to be strong and we are maintaining our overweight to equities.