Indian markets underperform global peers in May; March quarter earnings provide silver lining, says brokerage

The Indian markets underperformed global markets in May 2022, while the March quarter earnings provided a silver lining, a domestic brokerage firm Motilal Oswal said in it’s the Eagle Eye report.

The benchmark indices slipped for the second straight month in May, as both – Sensex and Nifty50 – declined between 2-3 per cent last month. In April, the frontline indices were down between 3-4 per cent, however, they had gained 5-6 per cent during March 2022.

Despite underperformance in May, the markets still stand out and outperforming global markets in CY22 to date, despite several macro headwinds, even as midcap/smallcap indices lag and in less than six months, the underperformance in IT has shaved off 300bp from its weightage in the Nifty, it said.

According to the brokerage report, the average daily cash volumes fell to Rs 619 billion – a five-month low, while non-institutional participation declined to 48 per cent of total cash volumes in May as compared to 58 per cent in April this year.

In the primary market, around 45 per cent of companies listed in the last one year are trading below their offer prices, Motilal Oswal also stated.

Corporate earnings in the March quarter and FY22 were resilient, with the Nifty EPS up 35 per cent – the highest since FY04 and forward estimate revision for FY23 was stable; while Q4 GDP growth was muted at 4.1%, the high-frequency macro data indicators show continued healthy trends, it added.

The selling spree from FII (Foreign Institutional Investors) outflows continued for the eighth straight month, the brokerage noted, as in CY22 till date, outflows stood at US $22.2 billion, but were compensated by DII (Domestic Institutional Investors) inflows of US $20.7 billion.

At the current point, the market seems to be a stock picker, says Rahul Shah-Co-Head of Research, at Equitymaster, where companies showing earnings growth and improvement in fundamentals will be rewarded whereas the ones with a lot of debt and exorbitant valuations will be punished.