“Selling your winners and holding your losers is like cutting the flowers and watering the weeds” - Peter Lynch
Month of July, 2022 unexpectedly was one of those rewarding months in markets where you didn’t have to look too far for to see the positive impact on your investment. We too had fewer missed & more hits this month. But first the over all market texture - which is immensely bullish. Nifty after posting negative monthly returns for April (-2.1%), May (-3%) & June (-4.8%) posted largest gains in July (+8.7%) making it the best month of this year so far.
Macro headwinds slow down
At 79.2 USD/INR cooled off slightly (-0.7%) last week but was still up 0.5% on MoM basis and weakening 6.8% in FY23. RBI has done a commendable job with its repeated intervention to stem the volatility which was strong especially in the early parts of the month. As on 1st week of July RBI’s foreign exchange reserves declined $5 billion while preventing runaway depreciation of Rupee.
Crude Oil (Brent) briefly trading sub $100 spent most of the time in $100-110 range this month as views on impending recession getting stronger in Europe & USA kept the crude oil bulls in check.
For India, CPI number for the month came in at 7.01% compared to 7.04% in the previous month showing some signs of cooling off, while the reading is still much above the 6% tolerance level of RBI-MPC. WPI also dipped from 15.9% to 15.2% this period.
Foreign Institutional back as buyers
Finally after being on a selling spree since October’21 FIIs are back as buyers in Indian Stock Market. Just in FY23 alone FIIs have sold equities worth INR 74,000 Crores (till June) while the number for FY22 stands at INR 1,70,010 Crore. Last week of July witnessed strong buying in FII favorite names especially those which declared robust quarterly earnings.
HDFC Bank (+5%), L&T (+15%), ICICI Bank (+16%), Bajaj Finance (+15.1%) were some of the heavy weights which outperformed the broader market on back of superior earnings. We like to believe some FII buying too provided necessary assistance.
When compared to previous years (or decades) Indian equities have almost stayed unscathed due to the strength of domestic buying (Retail, HNIs) and while we are not too worried about FIIs re-starting their selling spree, them staying on the buying side will definitely add to the market momentum which has been missing for a while.
Momentum stock ideas getting back its mojo
Momentum stock ideas have started getting back into form. Profits in couple of ongoing ideas from Auto Sector (like M&M etc.) have already been booked out while newer opportunities are been regularly shared by our research desk. While the market breadth is strong we are staying measured and would expect members to not go over board with momentum as these are early signs and until a higher-low on broader market is established, the current rally can just turn out to be a bull trap.
Long term investments to the moon
July turned out to be a month where annual returns were delivered in a month. Provided one had positioned themselves well. While we believed that the valuation are super attractive (in the June’22 letter) we would be lying if we said we expected such swift recovery in the market.
We had highlighted two specific accumulation levels one at NIFTY 16,000 and second stock specific levels which coincided with NIFTY 15,400. As of last close at 17,158 just the NIFTY index has gained by 7.23% & 11.41% respectively from those levels.
Our Long Term sectoral accumulation of IT sector stocks did phenomenally well too. While we believe the rally here is just getting started, the attractive valuation that we got these IT stocks provide us with ample margin of error which is usually missing when picking them using momentum.
Few other stock ideas (sectoral & stock specific) have left the bow (many up by more than 4-5%) and we are waiting to book them out on reaching their respective targets.
Banking sector shifting gears
Banking stocks look in great shape, so does Realty sector. Our previous focus sector FMCG & Auto are already trading at 52 week high levels with room for more on the upside.
It is usual to expect IT & Banking sectors to perform inversely of each other but at the moment both of these sector are firing on all cylinders. This is a potent combination which can lead to NIFTY reach its ATH (18,600) in 6-8 weeks time if current momentum persists. This is also the place we expect some major profit bookings.
But, given we have had a strong upmove from 15,200-17,200 some consolidation will make this rally more healthy and not another bull rally within a bear market, which would again lead us to lean on defensive strategies.
One pocket which is yet to roar back is Small Cap segment which is where we are actively pursuing ideas which check our boxes of quality, growth, attractive valuation and competent management. We have shared our first hidden gems stock pick note last month.
Ship has sailed, but not too far
The extremely attractive valuation of P/E 18.9 in last month has moved to 20.73 as of July end. So, if you missed he boat you can still jump on but it will be useful to stay stock specific. And for the SIP, let it continue as it is.
PS: Today is the last day of filling returns for FY22. If you haven’t filled it already you should hurry!
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