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Monthly Digest – June 2022

By Avatar photoKedar B | Edited By Kedar B | Updated on September 22, 2023

Where is the bottom for the headline index? 

A lot of time goes into answering such largely irrelevant questions during bad market periods. Irrelevant because stock pickers in India largely fish outside of the headline index, those stocks can have cycles of their own which lead or lag the index cycle by many months. This is one of the reasons why there is no point trying to hedge a stock pickers portfolio by buying index puts. 

You can have periods where you lose money both on the stock portfolio and on the index puts. Trust me, I’ve tried this in the past. One is better off holding through the volatility so long as the stock picks are good. Activity is counter productive for good investors who can stay put for 4-5 years. For those of us with operating roles in our professions this just feels wrong, imagine telling your CEO that your decision is to “do nothing” after sitting through a 3 day strategy workshop.


Q4 results season was very interesting if one takes a deeper look at results across sectors. To summarize a few observations – 

Urban discretionary consumption stories have bullish commentary with the March revenue exit rate surpassing pre COVID levels. Almost all players here have opened more stores aggressively through Q4. 

Chemicals players are coming off very low margins of Q2 and Q3, Q4 in fact was better on the margin front sequentially. The problem here is the abnormally high base of FY21 both on margin and cash flows 

Almost every player who derives revenue from energy capex is singing a bullish tone. Order wins have been the strongest for many years now 

FMCG behemoths are seeing clear signs of downtrading and slowing consumption in rural India while urban India continues to consume aggressively 

Lenders have the best balance sheets seen in a decade and improving metrics across the board. Credit growth is back to double digits for the industry and higher for the larger lenders 

The common thread across most sectors is that of muted operating cash flow for FY22 but there are reasons for this. At the same base of volume, realization being

higher has resulted in higher inventory valuation for the year. A few have extended higher credit terms to the channel to benefit from the extended bounce back post Omicron. 

When managements are optimistic, they invest into the business When they are cautious, they prioritize cash flow, cut capex and reduce credit 

Observe the difference in narrative at the end of FY21 and FY22. In FY21 managements were sounding optimistic but were behaving cautiously. In FY22 managements are sounding cautious post Omicron but optimistic in their behavior. Management tone is always dictated more by the past quarter results while their actions reflect how they expect the next few quarters to be.


The near term will continue to be dominated by fears on inflation, rate hikes, lower liquidity and fears of a US recessions. But the micro outlook for individual businesses looks much more sanguine. 

The recent past will always weigh more heavily on market conditions than the outlook for the future, until a bout of liquidity comes in and the price narrative suddenly changes. This will happen at some point of time, we just should not bank on this happening very soon.

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