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. 

However, the Indian equity market observed uneven bullish sentiment across sectors. The benchmark Nifty 50 gained close to 23%, but sectors like metal and IT generated higher returns (exceeding 50%). 

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.  

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.  While 2021 witnessed uneven return across sectors, the investment environment of 2022 seems even more difficult to ascertain, with tightening of financial conditions, rising concerns of Omicron variant, requirement of booster doses and valuation divergence across sectors.  

P.S. Sectors that outperformed during 2021 might not give similar return during 2022 as historical performance is not a guarantee of future performance. Savart intends to invest in businesses that are consistent and built to last – Sign up to know more! 

Savart is India’s largest Investment Advisor based on number of unique portfolios under advisory.