Stock Trade and the Economy

Even as the RBI gradually reduced India’s growth forecasts for the year, from 7.2 percent in April to 6.8 percent in December, and the benchmark Nifty50 index ended the year up only 4.1%, a few stocks delivered outsized returns to investors.

Expansion of business and reward

  • Adani benefited from the expansion: The top trade was undoubtedly Adani Enterprises, with the stock more than doubling in value over the year. But this should come as no surprise. After all, the group has embarked on a breathless pace of organic and inorganic expansion that is perhaps unprecedented in recent times.
  • Unexpected price increase: Share prices of associated companies such as Adani Green have also skyrocketed, propelling the group into the top tier of Indian conglomerates.
  • Risky price-to-rent ratio: One could be forgiven for thinking that residential real estate in Delhi is expensive, with a price-to-rent ratio ranging between 40 and 50. According to the NSE, Adani Enterprises is currently trading at a price-to-equity ratio of 394. In comparison, the Nifty50 is trading just above 21.

Performance of Public sector banks

  • SBI AND PNB WON: The year also belonged to Indian banks, particularly public sector banks, which appeared to have turned the corner. SBI is up more than 30%, while Punjab National Bank is up nearly 50%. Others, such as Bank of Baroda and UCO Bank, have more than doubled in value.
  • Outperforming private banks: While private sector bank stocks have also increased significantly, Public sector banks have outperformed their private counterparts by a significant margin, with Axis up nearly 35% and ICICI up 17%. In comparison, the Nifty PSU bank index is up 70% for the year, while the private bank index is up only 21%. This was possible to be expected.
  • Cleaning up the balance sheet: For several years, public sector banks have been working to improve their balance sheets and increase their capital. While there are still some concerns about potential slippages from accounts restructured during the pandemic, gross non-performing assets or bad loans were down to 6.5% at the end of September 2022.
  • Rising interest rates: Furthermore, lending is expanding rapidly. Bank spreads have also improved as the interest rate cycle has risen. Lending rates have risen faster than deposit rates, as is typical. However, as credit growth accelerates and competition for deposits among banks heats up, deposit rates are likely to rise, putting pressure on the spread.

Status of Consumption and auto sector

  • While concerns about the unevenness of the economic recovery persist, consumption stocks have performed well. ITC is up more than 50%, as is Britannia (up nearly 20%) and HUL (9 per cent).
  • Real wages have not increased: However, with firms highlighting the continuing pressure on volumes due to elevated inflation, real wage growth has been subdued in rural areas; it is likely that the formalization theme is still playing out in some product segments.
  • The market is not growing in size: The larger formal firms are gaining market share even though the overall size of the market is not growing as quickly as expected.
  • The auto sector has performed well: among the auto stocks, M&M and Maruti are up 50% and 12%, respectively, while Tata Motors is down 22%, while both Bajaj and Hero are up.

Improved Infrastructure Performance

  • Moderate improvement in infrastructure: The infrastructure sector is a mixed bag. Larsen & Toubro, often regarded as a proxy for the domestic capex cycle, is up nearly 9%, having recently set a new high.
  • The impact of the PLI scheme: This could be due to an increase in public sector capex or a private sector push under the government’s production-linked investment scheme.
  • Image of steel and cement: Ultratech is down among cement stocks, while ACC is up, SAIL is down, Tata Steel is almost flat, and JSW Steel is up.

The IT sector performed the worst.

  • IT NIFTY is significantly down: The sector that has taken a hit is IT. The Nifty IT index has fallen 26%.
  • Market correction: All major IT firms, from TCS to Infosys to Wipro, have experienced a market correction.
  • Impact of advanced economy slowdown: Sector valuations will be heavily influenced by market views on the slowdown in advanced economies, which are major revenue centers for these firms.

@the end

Though the stock market does not always reflect the true picture of the economy, it is a good indicator of where the average retail investor and common man invest his money. India’s stock market will be among the top three in the world. SEBI must protect retail investors in this highly volatile environment.

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