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Mid-year market performance review: Good, Bad & Ugly

The global market has seen one of its not-so-promising beginnings to a year. We’ve reached the halfway mark of 2022, with many investors feeling a little anxious about what they can expect to see in the coming few months. But is everything all gloomy, or is there hope for a brighter future? Is this the time to stay away, or is it the opportune time to enter the market?

Let’s read an honest review and start with the bad news first-

The Ugly

Indian stocks have posted their worst half-yearly performance since the COVID-19 pandemic first hit the markets in 2020. The BSE Sensex and Nifty50 have both fallen a net total of more than 13% over the last six months, wherein the BSE Sensex closed below 55,000, and the Nifty50 closed below 16,300 for the week ended July 1. Wall Street saw its worst first six months since 1970. Nasdaq and S&P were down by over 30% and 20%, respectively, at the halfway point this year and entered a bear market.

Here are some highlights of the season -

● Some of the S&P 500’s worst performers include Netflix and Etsy. Netflix, which saw its share price skyrocket during the pandemic, is now down by 70%. And Etsy, an online marketplace for art and craft from artisans, is down almost 65%. Tesla saw a 36% tumble, while Meta stocks plunged by more than 50%.

● In India too, one of the most significant declines was seen in the information technology (IT) stocks, which otherwise show much higher growth. The metal sector also showed a relatively poor performance. The impact on newly listed companies was intense. The CSE IPO index plummeted by 29% due to the poor performance of new-age companies.

● However, even bonds, usually the more reliable part of an investor’s portfolio, saw one of their worse performances this year. Investment-grade bonds were down almost 11.3% for the first half of 2022.

● Bitcoin, which was nearly at $69,000 in November 2021, sank to below $20,000 in June 2022.

What led to such a sharp decline in the market?

The volatility in the market has been heavily influenced by inflation and rising interest rates. Soaring inflation rates in India and around the world have resulted in many central banks raising interest rates. Concerns about inflation and aggressive tightening by central banks coupled together have led to an effect on growth, valuations, and sentiments of buyers and investors.

Geopolitical conditions have also negatively impacted the market. The COVID-19 pandemic has continued to disrupt operations in China. Global supply chains continue to be clogged due to fresh lockdowns there. Russia’s invasion of Ukraine has also disturbed the global market.

The Bad

According to Morgan Stanley, a developed market recession is likely to weigh in on Asia’s growth outlook, but the impact is likely to be relatively shallow.

In India, the trend of foreign investment is likely to be an important trigger for the stock market. Foreign investors pulled almost Rs. 14,000 crores from the Indian market in June. As a result, the net outflow from foreign portfolio investors (FPIs) breached the Rs. 2 lakh crore mark in 2022. However, some hopeful news is that analysts do not expect that foreign investors will continue to be bearish on India for much longer.

While there is a prevalent clash between tightening financial conditions from the central banks and good results from corporate America, this is not too unusual for the third year of economic recovery. Investors could still stand to gain from taking advantage of selloffs, as long as they don’t chase gains where there isn’t much scope for market strength.

Ultimately, 2022 could turn out to be OK for the market return overall, but just not as strong as what we’ve seen in the previous years.

The Good

The energy sector has been one of the better-performing sectors in the stock market. Oil and natural gas prices increased due to Russia’s invasion of Ukraine, setting new records. As a result, many global energy giants were able to achieve record profits.

Occidental Petroleum has so far been the best performer on the S&P 500 this year, almost doubling in price. Valero Energy recorded around 40% returns. In India, too, the BSE Oil and Gas Index rose by three percent on a year-to-date basis.

Utilities and the consumer staple sectors have been the next best performers. These resilient sectors have clearly shown their worth during these difficult times.

The Future: What Should Investors Do?

Factors like interest rates, inflation, and corporate earnings should be closely monitored as they are likely to have a deep impact on markets over the remaining course of the year. The market is expected to remain volatile in the near term due to global supply chain disruption, rising interest across the world, and the sentiment associated with the kind of impact these two factors can have across different sectors.

Experts believe that the worst damage has already been done, and there is little room for a further equally bad performance. While there are indications that the economy will continue to be slow, the year-to-date sell-off in stocks and bonds can provide long-term investors with better future returns. Careful research and investment at the correct time can ensure that you get good returns in the long term.

The recent plunge in the large-cap technology and growth stocks, despite above-average earnings reports, means that they are currently trading at affordable prices. The markets are low, which means that when it goes back up, there is a good chance to profit from investing now. But you need a more dynamic approach to portfolio management and should look for experts to analyze all data points.



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