Year-Ender 2022: Despite global headwinds and volatility, the Indian benchmark indices – Nifty50 and BSE Sensex – reported marginal growth of around 6 per cent each year-to-date (YTD) as of December 14, 2022.
However, the volatility seen in 2022 is likely to carry forward till the first half of the next year, WhiteOak Capital, Chief Executive Officer, Aashish P Sommaiyaa said while speaking to Zee Business Managing Editor Anil Singhvi earlier this week.
Sectorally, Nifty PSU Bank had a dream run this year as it reported a growth of more than 75 per cent, followed by Nifty FMCG, Auto, and Metals, While Nifty IT saw maximum crunch as it slipped nearly 25 per cent so far this year, followed by Nifty Consumer Durables and Pharma.
Below is the list of the top 10 sectors’ performance in 2022 so far with a detailed analysis by Vinit Bolinjkar, Head of Research, Ventura Securities (Except PSU Bank)
Nifty PSU Bank (YTD growth of 76%) – The sector has been an underperformer for a long time now and is now catching up with the rally. The bad assets problem of PSU banks has been resolved with government initiatives like NARCL (National Asset Reconstruction Company Limited). Besides, they are not seeing any NPA (non-performing assets) issues.
Nifty FMCG (YTD growth of 22%) – Food inflation improved the overall realization of food products and the companies passed on the higher input to end customers. It improved the revenue performance of FMCG companies as they witnessed a rise in absolute profits which accelerated the Nifty FMCG index.
Nifty Metals (YTD growth of 21%) – Shortage of coal and iron ore due to the Russia-Ukraine war triggered the metal prices. It improved the EBITDA per ton and cash flows for the metal companies, which further supported the Nifty Metal index.
Nifty Bank (YTD growth of 21%) – Improving fundamentals, robust balance sheets, and recovery in asset quality have improved the business outlook for Indian banks. Investors believe that the Indian economy will witness an upcycle in the coming years which will lead to a significant credit uptake. This expectation has accelerated Bank Nifty and it outperformed the broader index.
Nifty Oil & Gas (YTD growth of 17%) – A shortage of crude oil and natural gas due to the supply disruption triggered the energy prices which resulted in better margins for exploration and production (E&P) companies. It improved the fundamentals of ONGC and OIL. Further, Indian refiners purchased cheap Russian crude oil and sold the refined products at the market rate and earned significant margins on petrol, diesel and petrochemical businesses. Gains for E&P and refining companies increased Nifty Oil & Gas performance.
Nifty Auto (YTD growth of 17%) – Strong recovery in auto volumes after a lull period from FY19-22, partly due to the economic slowdown and then the pandemic, and new product launches improved the revenue and profitability of auto companies.
Nifty IT (YTD decline of 24%) – Performed in line with the broader Nifty index and remained subdued compared to other indices due to the global slowdown and wage inflation. IT companies increased their hiring during FY21 and FY22 in the expectations of significant global spending on IT infrastructure. However, the global slowdown reduced the order flow and IT companies are now facing employee cost pressure on their margins.
Nifty Pharma (YTD decline of 9%) – Increase in scrutiny from the US Food and Drug Administration and plant inspections, after a gap of 2 years, reduced the business growth of generic drugs in the regulated markets of North America and Europe. Further, an increase in (Active Pharmaceutical Ingredient) API prices impacted the profitability of drug companies and reduced the cash flows.
Nifty Real Estate and Construction (YTD decline of 7.5%) – Series of events such as demonetisation, GST, RERA, and then the pandemic affected the business of real estate companies. Investors expected a post-pandemic strong recovery, however, a sudden surge in metals and cement prices (key input materials in real estate and construction) along with a rise in interest rates increased the cost and reduced the profitability, which impacted the index performance.
Nifty Consumer Durables (YTD decline of 10%) – Surge in metal prices, especially steel and copper, increased the cost of white goods and kitchen appliances. To sustain market share, companies partially passed on the higher input cost and took a hit on their margins, which affected the index performance.