Sector Leaders And Laggards Behind India’s Market Growth

  • 06 Sep 2023
  • Read 8 mins read

The month of November 2022 was significant for the markets in a number of ways. Firstly, it was the month when the Nifty and the Sensex touched their all time highs, despite global headwinds. Secondly, November 2022 was also the month with saw FPI flows in excess of $5 billion, the best month since we saw $6.44 billion infused in August 2022. Above all, the Nifty logged healthy gains for the second month in succession, with the large caps doing a lot better than the mid-caps and the small caps in the month of November 2022.

In the month of October 2022, the Nifty had gained 5.37% and it built on that base by growing by 4.14% in November 2022. Most of the rally came from the index heavy sectors like banks, IT and oil & gas and that was instrumental in taking the Nifty to new highs. Even the mid-caps and the small caps gave positive returns, although the buying interest was largely focused on the large cap stocks.

Nifty gains 9.73% in October and November combined

The Nifty rally came amidst strong global headwinds, which is what makes it special. However, there have been indications that growth may not be as badly hurt by the rate hikes and there are also indications that rate hikes may get slower going ahead. With these indications from the Fed, global investors are likely to become more risk-on in their approach. Here is the gist of the market story in November 2022.

  1. If things go as planned, the month of November may have been the last time the Fed raised rates by 75 bps. As per the latest statements coming from the Fed Chair, Jerome Powell, the rate hikes would taper to 50 bps in December and then to 25 bps after that. However, Fed has still indicated that with rates at around 4%, there may be another 100-125 bps of rate hikes at the bare minimum; albeit spread out over 2023.
  2. FPI flows, including the November 30th MSCI reallocation flows were to the tune of $5 billion plus in the month. That is the best month in terms of FPI flows since August 2022, when $6.44 billion flowed in. FPI flows were positively impacted by the risk-on triggers coming from the Fed. With Indian GDP likely to still grow at about 7% for FY23, it would be the fastest growing large economy, that global investors cannot afford to miss out on.
  3. There were come broad concerns over the results of industrials as the second quarter results announcements came to an end. Profits of Indian companies (excluding banks) fell sharply in double digits. This was due to two factors. Firstly, the cost of inputs have gone up sharply amidst supply chain constraints. Secondly, the interest cost has gone up due to rising rates, leading to lower interest coverage for Indian companies. However, on the positive side, PSU banks have reported stellar numbers and the result is evident in their monthly returns.
  4. That brings us back to the question of Indian indices touching new highs in a tough quarter. It is not just about the GDP growth at 7% plus for FY23. Investors are betting on a fundamental shift in the nature of the India narrative as it capitalizes on the problems in China. From chips to aerospace, India is rapidly becoming a global hub for manufacture. Most investors are betting on this trend driving the growth of India’s GDP from the current $3.4 trillion to $5 trillion in the next few years.

The problems that markets faced at the start of 2022, like supply chain constraints, recession fears, high inflation are all receding. That is putting Indian markets in a sweet spot.


Let us look at the four major sectors that did better than the Nifty in terms of monthly returns.

  1. PSU banks led the way with 15.6% returns for the second month in succession. Most of the PSU stocks are at 52-week highs and have rallied 80-100% from their yearly lows. It has been a combination of improving NIMs, better interest spreads and lower provisioning. Interest yields are growing faster than interest costs.
  2. Metals at 11.33% were the second big positive surprise for November 2022. Metal stocks were driven by hopes that China would be forced to exit its stringent anti-COVID policies. This would be supported by a monetary and fiscal boost. Metal prices have already started rallying on that hope.
  3. Oil & gas saw most of the gains coming from downstream oil companies like Reliance Industries, BPCL and Indian Oil. These companies gained from lower crude prices. To an extent, Reliance also had other reasons for the rally, including the proposed separation and listing of the Jio Financial subsidiary.
  4. IT has been a surprise outperformer in November 2022, largely on the back of value buying at lower levels. The aggressive stance taken by IT companies on costs appears to have resolved some of the pressing margin problems for these IT companies.

Not too many disappointments in November 2022

Broadly three sectors gave negative returns in November 2022 viz. Consumer Durables, Autos and Pharma. While pharma had more to do with the pressure of US operations faced by most pharma companies in the latest quarter, the auto and consumer durables were more to do with consumer demand. Consumption spending had been weak in India, as evidenced during the festive season as people are turning cautious. That impacted sales of these consumer facing products. Weak rural sales also had a negative impact.

How to define November 2022 in terms of market lingo? It could be defined as a month when the downside risks at a global level started to get mitigated. It may be too early to celebrate, but the indications are that global risks are reducing and once there is conviction, we could see risk appetite returns to these markets.