Note4Students
From UPSC perspective, the following things are important :
Prelims level: NA
Mains level: Indian Economy, stock trade indicators and economic growth
Context
- Even as the RBI steadily downgraded India’s growth forecasts for the year from 7.2 per cent in April to 6.8 per cent in December, and the benchmark Nifty50 index ended the year up a mere 4.1 per cent, a handful of stocks delivered outsized returns to investors.
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Expansion of business and reward
- Adani gained because of expansion: The top trade was undoubtedly that of Adani Enterprises with the stock more than doubling over the year. But that should not come as a surprise. After all, the group has embarked on a breathless pace of expansion (both organic and inorganic) that is perhaps unparalleled in recent times.
- Unexpected rise in prices: Share prices of associated companies such as Adani Green have also seen a remarkable surge, catapulting the group into the top leagues of Indian conglomerates.
- Risky price-to-rent ratio: One should be forgiven for thinking that residential real estate in Delhi, with a price-to-rent ratio that ranges between 40-50, is expensive. Adani Enterprises is currently trading at a price-to-equity ratio of 394 as per NSE. The Nifty50, in comparison, is trading just above 21.
Performance of Public sector banks
- SBI AND PNB gained: The year also belonged to Indian banks, more specifically to public sector banks, who at last seemed to have turned the corner. SBI is up more than 30 per cent, while Punjab National Bank is up almost 50 per cent. Others like Bank of Baroda and UCO Bank have more than doubled.
- Outperforming private banks: While private sector bank stocks have also seen a sharp rise Axis is up almost 35 per cent, while ICICI is up 17 per cent, public sector banks have outperformed their private counterparts by a significant margin. The Nifty PSU bank index is up 70 per cent for the year, while in comparison, the private bank index is up only 21 per cent. This was perhaps to be expected.
- Cleaning up balance sheet: Public sector banks have been on a multi-year drive to clean up their balance sheets, and shore up capital. And while there are still some concerns over possible slippages from accounts that were restructured during the pandemic, gross non-performing assets or bad loans were down to 6.5 per cent at the end of September 2022.
- Rising lending rates: Moreover, lending is growing at a brisk pace. And banks’ spreads also have improved with the interest rate cycle on the upswing. In typical fashion, lending rates have risen faster than deposit rates. But, as credit growth picks up and competition for deposits among banks begins to intensify, deposit rates are likely to edge upwards, putting pressure on the spread.
Status of Consumption and auto sector
- Consumption is up: while concerns over the unevenness of the economic recovery persist, consumption stocks have fared well. ITC is up more than 50 per cent, as are Britannia (almost 20 per cent) and HUL (9 per cent).
- Real wages have not increased: But with firms underlining the continuing pressure on volumes with elevated inflation, real wage growth has been subdued in rural areas it is likely that in some product segments, the formalisation theme is still playing out.
- Size of market is not expanding: The bigger formal firms gaining market share even as the overall size of the market isn’t expanding as hoped.
- Auto sector have done well: Among the auto stocks, M&M and Maruti are up 50 per cent and 12 per cent respectively, though Tata motors is down 22 per cent, while among the two-wheelers, both Bajaj and Hero are up.
Better performance of Infrastructure
- Moderate uptick in infrastructure: Infrastructure stocks are a mixed bag. Larsen & Toubro, often thought of as a proxy for the domestic capex cycle, is up almost 9 per cent, recently hitting a new high.
- Impact of PLI scheme: Perhaps, this reflects a pick up in the public sector capex or the private sector push under the government’s production-linked investment scheme.
- Mix picture of steel and cement: Among cement stocks, Ultratech is down, though ACC is up, while among steel stocks, SAIL is down, Tata steel is almost flat, but JSW Steel is up.
IT sector was worst performing
- IT NIFTY significantly down: The sector which has taken a beating has been IT. The Nifty IT index is down 26 per cent.
- Heavy correction in market: All major IT firms from TCS to Infosys to Wipro have witnessed heavy correction.
- Impact of slowdown in advanced economy: Valuations of the sector will be heavily influenced by market views over the slowdown in advanced economies which are major revenue centres for these firms.
Conclusion
- Though stock market doesn’t reflect the entirely true picture of economy but it certainly a good indicator of where the retail investor and common man invest his money. India’s stock market is going to be top 3 in the world. SEBI must protect the retail investor from this highly volatile terrain.
Mains Question
Q. Analyze the performance of the auto and IT sector in India through lenses of stock market? Why the balance sheet of public sector banks is improving?
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