The Savart Annual Market Wrap-up 2021

The Indian benchmark index Nifty 50 outperformed many emerging markets during the year 2021 driven by strong rally in IT and Metal Sectors. Nifty 50 gained close to 23% during 2021 beating other markets such as China, South Korea, Brazil and Australia possibly driven by stronger economic recovery, supportive monetary policy, and faster vaccination across the country. 

Note: The above indices are scaled down to 100 for comparison purposes. 

Nifty Metal gained close to 70% during 2021 beating the rest of the sectors. The commodity market gained significantly during the year on account of faster than anticipated demand recovery and supply chain bottlenecks. Consequently, the demand-supply mismatch has contributed to the rise in prices of commodities such as ferrous and non-ferrous metals. This has boosted the realisation of Indian metal companies and further enabled the companies to reduce the debt from their balance sheet.  

Nifty Metal gained close to 70% during 2021 beating rest of the sectors. The commodity market gained significantly during the year on account of faster than anticipated demand recovery and supply chain bottlenecks. Consequently, the demand-supply mismatch has contributed to the rise in prices of commodities such as ferrous and non-ferrous metals. This has boosted the realisation of Indian metal companies and further enabled the companies to reduce the debt from their balance sheet.  

Nifty IT became the second highest return generating sector during 2021. As the world was hit by Covid-19, digital adoption accelerated for both the consumers and businesses. Nifty IT gained close to 57% during the year. The rally was largely driven by the paradigm shift within businesses towards digitization and platform services. The order book for IT companies showed solid growth during the year across verticals. However, the sector has also experienced pressure during the year due to rise in wages and employee benefit expenses.  

The new deal wins remain robust in this quarter as well. TCV of new deal wins recorded 38% YOY growth in Q2FY22 at US$2.24 billion on account of 14 new large deal wins. US$ 100 million + clients are up by 1 YOY basis, US$ 50 million clients are up by 12 YOY basis, US$ 20 million clients are up by 18 YOY basis.

On the other hand, sectors like Auto, Pharma, Bank and FMCG have significantly underperformed the IT and Metal sectors due to sector specific challenges faced by the industries. Nifty Auto has undergone a lot of turbulence because of the demand side challenges faced by the two-wheeler sector post the 2nd wave of Covid-19 and supply side constraints that impacted the passenger vehicle segment adversely led by the chip shortages issue. Such challenges only allowed Nifty Auto to gain ~16% during the year. It is also important to note the stellar 150%+ return generated by Tata Motors during 2021, which significantly impacts the fortunes of NIFTY Auto.  

Nifty Pharma has underperformed its peers with a significant gap during the year 2021. Nifty Pharma posted close to 6% return during the year. The performance of Indian Pharmaceutical companies depends on the US market. The Indian pharma companies faced higher competition in the US market, thus stunting the growth of many Indian drug makers.

Nifty Bank gained close to 13% during the year. The two back-to-back pandemic induced lockdowns impacted the Indian banking sector adversely. Though the banks recorded strong growth in advances (loans) during the 2nd half of the year, a lot of stress is still prevailing in restructured loan books of the banks. Consequently, the provisions for the bank have gone up and this has been a major sentiment dampener for the banking sector during 2021.

Nifty FMCG posted a lower return during the year of close to 8%. FMCG companies recorded healthy revenue growth during the year due to resilient demand in the sector but have experienced high raw material cost pressure during the last 2 quarters. Thus, the margins (profitability) of the companies have been impacted adversely. Nifty FMCG sector has moved lower by approximately 11% in last two months due to the high input cost pressure.

Nifty Pharma has underperformed its peers with a significant gap during the year 2021. Nifty Pharma posted close to 6% return during the year. The performance of Indian Pharmaceutical companies depends on the US market. The Indian pharma companies faced higher competition in the US market, thus stunting the growth of many Indian drug makers.

Nifty Bank gained close to 13% during the year. The two back-to-back pandemic induced lockdowns impacted the Indian banking sector adversely. Though the banks recorded strong growth in advances (loans) during the 2nd half of the year, a lot of stress is still prevailing in restructured loan books of the banks. Consequently, the provisions for the bank have gone up and this has been a major sentiment dampener for the banking sector during 2021.

Nifty FMCG posted a lower return during the year of close to 8%. FMCG companies recorded healthy revenue growth during the year due to resilient demand in the sector but have experienced high raw material cost pressure during the last 2 quarters. Thus, the margins (profitability) of the companies have been impacted adversely. Nifty FMCG sector has moved lower by approximately 11% in last two months due to the high input cost pressure.

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INSIGHT

HCL Tech Is Poised For

A Good Performance

This Year

Indian IT Sector recorded strong growth during September ended quarter FY22. The pandemic has accelerated the pace of transition towards digital transformation and it is evident from the quarterly numbers reported by the industry players. HCL Tech has reported 10.5% revenue growth in constant currency basis beating the estimates on account of the strong performance of the service segment. HCL Technology posted the digital segment of the business contributes significantly to the overall portfolio. HCL Tech recorded positive growth in net income at 3.9% YOY basis.

How to help clients using Big Data

Application services, Digital consulting, Data analytics, Engineering services and cloud services contribute 85% of the overall growth. The service portfolio recorded 13.1% growth (YOY) and 5.2% sequential growth in constant currency. The Mode -2 offerings include IT & Business Services and Engineering & R&D services. Mode-2 offerings recorded strong positive growth of 36.3% YOY on account of the acceleration in demand for cloud migration and digital services. recorded strong positive growth of 36.3% YOY on account of the acceleration in demand for cloud migration and digital services.

The service portfolio recorded 13.1% growth (YOY)

and 5.2% sequential growth in constant currency.

IT companies’ margins for the quarter took a hit across the industry. The elevated attrition level has led to higher employee wages and supply side challenges. HCL recorded attrition levels of 15.5% in Q2FY22 vs 12.2% in Q2FY21. The EBITDA margins for this quarter took a hit and came down to 23.4% in Q2FY22 vs 26.60% in Q2FY21 on account of prevailing higher wage inflation in the IT Sector.

The new deal wins remain robust in this quarter as well. TCV of new deal wins recorded 38% YOY growth in Q2FY22 at US$2.24 billion on account of 14 new large deal wins. US$ 100 million + clients are up by 1 YOY basis, US$ 50 million clients are up by 12 YOY basis, US$ 20 million clients are up by 18 YOY basis.

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