MARKET REVIEW - DECEMBER 2021

Equity Market
November 2021 witnessed domestic stockmarkets trip up on valuation concerns, resurgence of Covid in some parts of the world, with the Omicron virus variant posing its own set of concerns. Foreign investors were seen shifting from Indian equities to inexpensive opportunities in other assets / markets. Large cap indices S&P BSE Sensex and Nifty 50 closed lower by 3.78% and 3.90% respectively, while S&P BSE Mid-Cap and S&P BSE Small-Cap fell 2.33% and 0.16% respectively.
On the BSE sectorial front, S&P BSE Power (up 6.7%), S&P BSE Telecom (3.6%) and S&P BSE Teck (2.7%) were the gainers. While S&P BSE Metal (-9.0%), S&P BSE BANKEX (-8.7%) and S&P BSE Finance (-7.0%) were the losers.



Source for numbers: BSE and NSE and leading business dailies.(November 2021)

Debt Market
The Indian economy (GDP) expanded by 8.4% over second quarter of FY22 (July-September 2021), owing to a low base combined with positives like accelerated vaccination and an improved showing in agriculture and defence services. GDP was 0.33% higher than pre-pandemic levels of July-September 2019-20 in absolute terms - this implies that the economy has recouped losses from the pandemic.
Retail inflation (CPI) trended higher to 4.48% in October 2021 (4.35% in September 2021) on account of inflation in food prices, which trended higher to 0.85% in October 2021 from 0.68% in the previous month.
Wholesale inflation (WPI) hardened to 12.54% in October 2021, up 10.66% in September 2021. Rise in WPI can be attributed to inflation in prices of mineral oils, basic metals, food products, chemicals and chemical products, crude petroleum & natural gas.
India’s industrial output (IIP) clocked a none-too-impressive growth of 3.1% in September 2021 with the low base effect out of the equation. This points to challenges ahead, seeing that IIP had shot up by 11.9% in August 2021 thanks to the low base effect.
Manufacturing increased at its quickest pace in eight months in October 2021, in view of the upcoming festive season. This is the fourth successive month of gains in manufacturing. Manufacturing sector (accounting for 77.6% of IIP), grew 2.7% in September 2021. Mining output also climbed 8.6%, with electricity rising by 0.9%. Capital goods output gained 1.3% in September 2021 (decline of 1.2% in August 2020), consumer durables dropped 2%, vis-à-vis a rise of 5.3% year-on-year in the previous month.
November 2021 GST collections rose to over Rs 1.31 lakh crores, the second highest ever since inception of GST in July 2017. This is 25% higher than November 2020, and 27% more than November 2019.
According to the India Services Business Activity Index, India’s services sector grew at the strongest pace in ten-and-a-half years in October 2021, thanks to a sharp turnaround in business activity.
Merchandise exports registered a record USD35.5bn in October 2021, expanding 42.3% YoY and 35.2% from pre-Covid levels (same month in FY20). Export demand from China and US was a key contributor. At USD55.4bn, imports grew by 62.5% in October 2021 (YoY) and 45.8% from pre-pandemic levels (in the same month). As a result, trade deficit climbed to USD19.9bn in October 2021, although this is lower than the USD22.6bn in September 2021. Imports were higher mainly due to inflation in global crude oil prices, which are at close to 3-year highs, as also increased imports ahead of the festive season.
US retail inflation jumped to 6.2%, the highest recorded in over 3 decades. Federal Reserve’s response to the rising inflation is being watched closely. Higher than expected tapering, could force foreign investment outflows out of emerging markets like India; this is already evident. AMFI’s October 2021 data reveals that investors are increasingly showing preference for debt-oriented funds, away from equity-oriented funds, underscoring valuation concerns.
Over the short term, market outlook will take cues from US Fed tapering although it is unlikely there will be a sharp sell-off. It is early days to comment on the new virus variant in terms of gravity, government’s response lockdowns, travel restrictions. At this stage, it appears that the view is accelerated vaccination to widen coverage is the best bet to counter the variant.


Source for numbers: Leading business dailies (November 2021)