Year end review FY 2021-22
April 05, 2022 | Smallcase Updates, Quick Reads
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Dear Investors,
Prima Facie, equity as an asset class in last 2 years has given splendid returns to investors given the low base formed in March 2020. Our strategy has turned out to be fruitful in out-performing the market. With immense gratitude, we are happy to say that our portfolio has been amongst the top performers on smallcase.
From here on, should we keep our expectations moderate and realistic? Will the markets fall? These are the most frequently asked questions to any investor. Let’s put things in context.
Amid the market mayhem, sticking to your investment process, research, discipline, patience and not to miss the luck factor did result in superior returns for investors. Let’s keep this in mind and move forward.
FY21 was an eventful year. FY22 continued the streak, began with a fatal second COVID-19 wave and ended with Russia-Ukraine conflict with energy crisis in Europe, Sri-Lanka economic crisis and supply chain disruptions in between resulting in high commodity prices creating inflationary environment. What remained common is that Indian economy emerged resilient and stronger getting benefited due to supply chain disruptions, China +1 and most importantly prudent government support policies in few sectors. Not to miss, the record IPOs that came in FY22. Where are we currently? FY23 also, began on a high note. At Niveshaay, analysing the current scenario characterised by too many moving parts, we are following a stock specific approach where we see structural trend.
How are we picking up stocks?
The best characteristics of equity markets is that we can switch to sectors which are doing well amid the chaos taking benefit of China +1 strategy, inflationary environment etc. For instance, commodity producers (metals, mining, oil and gas etc.) are having a good time while the commodity consumers (Auto, FMCG and consumer durables etc) are having difficulties in passing on the increased prices. Of course, some sectors are unaffected too rather witnessing tailwinds like the IT and Pharma.
We started tracking manufacturing sector in 2016, and little did we know that five years later, the sector would witness upswings from structural and persistent trends like China plus one, consolidation in supplier base and strong government focus. Connecting the dots, looks like India is getting benefitted from these trends owing to certain competitive advantages like cheap labour, low interest rate, favourable government policies, ease of doing business and India is a huge market in itself.
Having said that, the Budget 2022-23 continued the growth momentum through a higher multiplier effect. The major thrust was on reviving the capital expenditure cycle in the country through PLI-Scheme, China plus one and imposing anti-dumping duty boosting domestic production. The rise in capital expenditure helps to crowd in private investment. The virtuous cycle of investments begins in the economy. Capex has a higher multiplier effect on economic output over revenue spending. Investment cycle has bottomed out. Investment contribution to GDP has reduced to 26.7% in FY21 from peak of 36% in FY07. The value of new projects in quarter ended March, 2022 was Rs. 5.1 lakh crores, 53.6 % higher qoq and double when compared to the previous year quarter (Source: CMIE).
Staying true to our investment style, we’ll continue to focus on companies where competition is limited, plays a pivotal role in the manufacturing process and an indirect play on the expected high growth in a broad sector. Here, we are broadly focusing on building materials, textiles, chemicals, metals etc.
Another theme, which we continue to remain bullish on is the renewable energy space. This sector is benefitting from the government impetuous and now the entry of private sector (Reliance Industries) signals a green time in this sector has come. Also, Indian players are becoming competitive globally. When the world is moving towards sustainability, companies doing their bit in achieving the same, then why not tap these opportunities and be a part of their growth story when they are literally getting premium for their products?
Also, focus is on Exports. The pandemic has certainly built a framework for India to find a pivotal place in the global value chain in some sectors like chemicals and textiles. According to commerce and industry ministry, the exports of $418 bn in FY22 surpassed the government target by 5%.
India is a growing country where penetration of many products is very low. So, looking at consumption sector becomes important and also insulating cyclical nature of our portfolio at the same time.
Overall, we look forward to play on such themes, keep evolving with time and continue to analyse trends with fresh perspective.
A BIG THANK YOU to all our subscribers for trusting us in your wealth creation journey. We will continue to stick to our process and give our one hundred percent always.
Happy Investing!
Disclaimers and Disclosures
SEBI Registration No. :INH000017338, IN/AIF3/24-25/1571, IN/AIF2/24-25/1607 | BASL Membership ID: 6276
Investment in Securities Market are subject to market risks. Read all related documents carefully before investing. The securities quoted are for illustration only and are not recommendatory. Registration granted by SEBI, membership of a SEBI recognized supervisory body (if any) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.
