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* Tested by elevated volatility, the market consolidates in Apr’22: The Nifty after recording an impressive 19% YoY gain in FY22 has begun the year on a cautious note. The month was characterized by extreme volatility, with the benchmark oscillating in a range of ~1,300 points before closing 362 points (2.1% MoM) lower at 17,103. The increase in volatility was led by weak global cues, with concerns around inflation and potential rate hikes sparking a risk-off globally, leading to elevated FII outflows from India. FIIs saw outflows for the seventh consecutive month at USD3.8b. However, domestic inflows continued for the 14th consecutive month at USD3.1b in Apr’22.

* Earnings season broadly in line thus far: As of 1st May’22, one-third of Nifty and almost half of Sensex constituents have reported earnings for 4QFY22. Sales/EBITDA/PBT/PAT for the 17 Nifty companies grew 15%/13%/22%/24% YoY (v/s our estimate of 15%/12%/21%/22% YoY), respectively. Six Nifty companies have beaten our PAT expectations so far, while two have missed. On the EBITDA front, five have surpassed, four have missed, and eight have met our expectations so far. For the MOFSL Universe (54 companies), sales/EBITDA/PBT/PAT growth stands at 17%/16%/28%/31% YoY (v/s our expectation of 16%/16%/24%/25% YoY), respectively.

* Utilities, Oil & Gas and Consumer were top gainers while Technology, Media and Telecom were top losers: In the sectoral space, Utilities (+18%), Oil & Gas (+11%), Consumer (+5%), Automobiles (+5%), Infrastructure (+2%), and PSU Banks (+1%) were the gainers, while Technology (-13%), Media (-10%), Telecom (-4%), and Real Estate (-4%) were the biggest losers. M&M (+14%), NTPC (+14%), Adani Ports (+11%), HUL (+9%), and Hero Motocorp (+9%) were the top performers. While Infosys (-18%), Tech Mahindra (-16%), Hindalco (-15%), Wipro (-14%), and Bajaj Finserv (-13%) led the laggards pack.

* Major economies have ended lower in Apr’22: Barring Indonesia (+2%), and the UK (+0.4%), Apr’22 saw key global markets such as Brazil (-10%), the US (-9%), China (-6%), Taiwan (-6%), MSCI EM (-6%), Russia (-5%), Japan (-3%), Korea (-2%), and India (-2%) end lower in local currency terms. In the last 12 months, MSCI India (+20%) has outperformed MSCI EM (-20%). Over the last 10 years, it has outperformed MSCI EM by 193%. In P/E terms, MSCI India is trading at a 99% premium to MSCI EM, above its historical average of 60%.

* Corporate earnings appear positive; margin headwinds persist: Our outlook on corporate earnings and market performance in FY23 is positive. After a 15% growth in Nifty EPS in FY21 – the first double-digit growth in a decade – earnings are likely to grow 35% in FY22. We are building in 19% growth for FY23, led by BFSI, O&G, and IT. Despite the frightening news emanating from the Russia-Ukraine warfront, US Fed rate hike, tightening liquidity, and supply chain disruptions, the market has remained resilient backed by very strong corporate earnings, which matters the most to market returns in the long term. Our model portfolio positioning continues to focus on earnings visibility, economic recovery, pricing power, balance sheet strength and reasonable valuations.

* Top ideas: Largecaps: ICICI Bank, SBI, Infosys, HCL Technologies, Reliance, Titan, Apollo Hospitals, Hindalco, Bharti Airtel, Ultratech and BoB. Midcaps/Smallcaps: Ashok Leyland, Macrotech, APL Apollo Tubes, Chola Finance, Indigo Paints, Restaurant Brands, TCI, GR Infra, Dalmia Bharat, Lemon Tree and Angel One.

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