With failed negotiations and no compromise in sight between Russia and Ukraine, the volatility-infested Indian stock markets were left oscillating in a range for most of March, although by the time the month and financial year ended, markets had regained some confidence and the benchmark Nifty50 ended four percent higher than February.
Uncertainty about the geo-political situation continued and rising energy and commodity prices kept markets volatile. However, broader markets tracked the benchmarks and ended the month in positive territory.
January witnessed a 0.1 percent decline in Nifty, while Nifty Midcaps and Nifty Smallcaps declined 0.6 and 1.5 percent respectively. This trend continued in February as Nifty fell 3.1 percent compared to 6.8 and 11.4 percent fall in Nifty Midcaps and Nifty Smallcaps respectively.
March to April transition
By the end of March, all three indices recovered as Nifty50 grew 4.0 percent and Nifty Midcaps and Smallcaps recovered 5.2 and 6.0 percent respectively.
“The March series signed off with huge volatility across asset classes leaving investors perplexed, but the financial year closure brought relief to the equity market against the deep dive at the beginning of the series,” said Kruti Shah, quantitaive analyst at Equirus.
April series posed a big question about the continuation of the same momentum with heavy market-wide open interest positions across indices & SSF (single stock future). April series witnessed outperformance in Midcaps and Smallcaps versus the benchmarks with positive market breadths.
“In a month when the large and midcaps were under selling pressure from institutions (including FPIs or foreign portfolio investors) Smallcaps had a good run due to trader interest and lower institutional holdings,” said Deepak Jasani, head of retail research, HDFC Securities.
“However, the sharp recovery in mid and small-cap indices has made them expensive compared to the Nifty 50 index,” said Vinit Bolinjkar, head of research, Ventura Securities. Nifty Mid and Smallcap valuations are at 1.2x of Nifty's valuation, while their 10-year average stands at 0.8x, making them 50 percent expensive over the long term, he added.
The outperformers
Despite increased volatility and pressure on markets from external factors like ongoing war, higher crude and commodity prices fuelling inflation amid rising interest rates, many portfolio management service (PMS) schemes from broader markets outperformed Nifty and Sensex and generated better returns last month.
PMS schemes cater to wealthy investors with portfolio sizes exceeding Rs 50 lakh. Their professional fee structure is different from that of regular mutual funds.
Of the 270 schemes tracked by pmsbazaar.com in March, 110 schemes (41 percent of the total) generated better returns than the Nifty, the data shows. There were 74 schemes (27 percent) that generated more than five percent returns for the month.
The highest returns of 13.5 percent for the month were generated by Care Portfolio Managers-Growth Plus Value scheme which was followed by Right Horizons-Minerva India Underserved (11.37 percent), Abans Inv Managers-Smart Beta Portfolio (10.53 percent), Nine Rivers Capital-Aurum Small Cap Opp (9.74 percent) and Invesco-Caterpillar (9.46 percent).
Not all of these top schemes disclosed their stock holdings for March. Moneycontrol has collated the top five among those that disclosed holdings.
This list gives investors an idea about which stocks the fund managers of these schemes bet on. But they should not be considered ‘buy’ recommendations.
Care Portfolio Managers – Growth Plus Value
The small and midcap-focused scheme generated the highest returns of 13.5 percent for investors during the month of March. Its top picks were JK Paper Ltd, Cosmo Films Ltd, Tata Steel Ltd, Thirumalai Chemicals Ltd and LT Foods Ltd.
Abans Inv Managers – Smart Beta Portfolio
Primarily focusing on midcaps, this scheme generated returns of 10.53 percent for the last month. Its top five holdings were Adani Total Gas Ltd, Tata Elexsi Ltd, SRF Ltd, Laurus Labs Ltd and Mindtree Ltd.
Nine Rivers Capital – Aurum Small Cap Opp
This scheme focused on smallcaps to generate 9.74 percent returns for its investors in March. Its top investments for the month were Intellect Design Arena Ltd, Astra Microwave Products Ltd, Praj Industries Ltd, Poly Medicure Ltd and Tejas Networks Ltd.
Inveso – Caterpillar
Keeping its focus primarily on midcap stocks, this scheme generated returns of 9.46 percent for the month. It placed its bets on stocks like Tata Elexsi Ltd, Tata Motors Ltd, Teamlease Services Ltd, Sundaram Fasteners Ltd and Bharat Electronics Ltd.
Anand Rathi Advisors – Decennium Opportunity
A multicap-focused scheme, it could generate returns of 9.40 percent during March. It invested its money in Greenpanel Industries Ltd, Solar Industries India Ltd, Oberoi Realty Ltd, Bharat Electronics Ltd and Craftsman Automation Ltd.
The outlook
Experts believe that from a medium term perspective, markets are expected to remain volatile with a fall in business outlook for global markets.
“In the medium term, the market is expected to remain range-bound due to input cost inflation, the possibility of a rate hike, a cut in GDP growth guidance by RBI (from 7.8 to 7.2 percent in FY23) and a subdued demand scenario,” said Bolinjkar of Ventura Securities.
According to Divam Sharma, founder at Green Portfolio, inflation is the biggest elephant in the room and he sees RBI raising interest rates over the coming quarters.
“We are seeing good opportunities in commodities, steel, and cement sectors,” added Sharma. The prices in these sectors have escalated quite significantly and with disruption in global supply chain, the demand in these sectors continues to look robust.
“These companies will continue to benefit from this trend over the coming 2-3 quarters,” said Sharma.
With conventional sectors/heavyweights caught in a range, a contrarian view may help to generate alpha. “At sectorial level cyclicals (i.e cement) are showing consistent strength & buying at lower levels, hence we may focus on leaders like ACC, Ambuja and Birla Corp,” said Shah of Equirus.
Shah also prefers the hotels sector which is coming out of woods after the COVID era and looks promising for further appreciation. “Among leaders, Indian Hotels and Lemon Tree may be targeted for a larger timeframe,” she suggested.
With the government emphasising ethanol blending, the sugar sector is another promising space, experts feel while recommending Balrampur Chini, Praj Industries and EID Perry for good returns.
Bolinjkar believes that the midcap and small-cap stocks are likely to face a higher impact than broader large-cap indices in the coming months due to their lower liquidity and higher risk. Hence, investors need to be very selective in stock picking.
“Nifty Next 50 and the bottom 100 stocks of the Nifty 200 index (which are large mid-cap stocks) are better positioned due to their liquidity, business strength and diversified shareholding,” said Bolinjkar.
However, Gaurav Dua, head of capital market strategy, Sharekhan by BNP Paribas, believes that investor appetite for mid and smallcaps is not as good as seen in 2021 since both the Nifty midcap and smallcap indices are down around 4 percent each in the fourth quarter of FY22 as against 0.6 percent gain recorded by Nifty. “In our view, smallcap has already completed its historical 16-22 months of upcycle trend and investors should be cautious of this space,” he said.
Focus on sectors which are relatively immune to input cost inflation could be advisable in the near term. “Corporate banks, building materials, select real estate and infrastructure companies and beaten-down quality consumers in large-cap could be preferred in the medium term,” Dua said.
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