Bottomline: 10 developments that defined FY22

There was a general sense of helplessness and angst. The world had changed. Fear of COVID scaled a new high, and existential choices were made. Lockdowns became more severe, healthcare capacities were added on a war footing, and oxygen supplies were scaled up. The world was on a mission to survive. That period will never be forgotten.

While the global semiconductor shortage started taking birth in 2020, a large part of its impact was seen in the last fiscal. Lockdowns led to a drop in vehicle purchases and a rise in demand for laptops, phones, home appliances and electronic goods, leading to a shift in output to serve the growing needs. Disruptions in chips production due to COVID restrictions also played their part. And given the uncertainty and the fragile economics of the chip business, few were willing to undertake capex. This caused significant problems for automakers once economies started opening up, and experts expect some chip supply pangs will continue to be felt through 2022.

After a stuttering start, the electric vehicle movement in the country gathered pace. Tata Motors led the march in the passenger vehicle segment, and its success forced others to the drawing boards to chalk out their EV strategies. On the two-wheeler front, early-bird Hero Electric got off to a good start with cab-hailing brand Ola throwing its hat in the ring and more reluctant two-wheeler makers Bajaj Auto and Hero MotoCorp joining the party, lest they lose out in the race.

Numerous tie-ups were inked on charging infrastructure, with Tata Power being at the forefront in many of these. Even battery swapping collaborations took birth, with the latest being between Sun Mobility and Amazon.

Reliance Industries stirred up the pot in new energy after it opened up a new growth vertical for the group in the new energy space with its mega Giga factories plan. Consequently, many acquisitions and collaborations have made this emerging business a near realisable dream. The mega reveal has egged many others, public enterprises included, to join the hydrogen and other new energy race.

2021 was a big year for stock market listings of Indian come-of-age start-ups or unicorns. The rush was kicked-off by the stellar public issue performance of Zomato in July, which was subscribed about 38 times and saw its market capitalisation cross Rs 1 lakh crore after listing. Those were the “high novelty” days. Some of that euphoria has since faded, with the stock now commanding a capitalisation of about Rs 66,000 crore.

More importantly, peer Paytm has seen its valuation decline from near Rs 1.4 lakh crore (based on the IPO price) to just Rs 37,000 crore. The street is in no mood to value these businesses as venture capitalists do, exposing the divide between GMV and EPS.

India’s PLI Schemes got a big push last fiscal with the total tally at 13 with an outlay of about Rs 2 lakh crore, which, if you add the semiconductor scheme, moves the number closer to Rs 3 lakh crore. The schemes span various sectors ranging from auto components and automobiles to aviation, chemicals, electronic systems, food processing, medical devices, metals & mining, pharmaceuticals, renewable energy, telecom, textiles and white goods. Besides these, there is also now a Hydrogen Mission.

The scheme aims to encourage Indian manufacture of imported products (Make in India) and capture a slice of the global market for them. The incentives under the schemes are linked to output targets with certain minimum defined investment criteria. The rationale is to offset the cost disadvantages of manufacturing in India, a key one of which is high logistics cost. And given that these are time-bound schemes, the big question remains whether the incentives will be extended if India cannot become competitive on such costs versus other economies.

While there has been a rush of applications to participate in these schemes, whether the industry will be able to deliver and meet the targets set remains to be seen. Early indications on this front present a mixed picture, even as ministries jostle for higher allocations.

Russia’s invasion of Ukraine has jolted the developed, developing and civilised world. No one had ever thought we’d see a war play out again. Even the possibility of a world war was put on the table. The connected digital world saw a spattering of visuals of the carnage and casualties. The reactions were disbelief and anguish. The tremendous public uproar drove the bystander western powers to strengthen Ukraine’s hands in the one-sided battle against its powerful neighbour.

But besides the human angle, what the Russian incursion did was spotlight the inter-dependencies in our world. Europe’s need for Russian energy supplies, the world’s supply of wheat, oilseeds, metals, and EV battery inputs from the war-torn region came to the fore. The ensuing sanctions also revealed the risks of the global financial system, with experts questioning the dollar’s dominance, the gold standard option, the role of cryptocurrencies and the need for transaction systems other than the widely used SWIFT.

The war has also polarised the world, with China standing alongside Russia as a vital counterweight to the US and European powers. Do NATO members have the stomach to take on a Russia-China combine, even diplomatically? I don’t quite think so. And that leaves us with a very peculiar situation that could define the future world order well.

What it also does, is put the focus on de-globalisation—where economies look to achieve a certain level of self-sustainability—in conflict with the economic theory of efficiency. We can only guess where we are headed with this one, but it is more exclusive than inclusive as a global society.

The US Federal Reserve saw its assets double from about $4 trillion in early 2020 to near $9 trillion earlier this year, and the quantitative easing sparked a global rally in assets. With inflation threatening to go out of control, the US central bank, at its last policy meeting, finally decided to turn the tide with a 25 basis point rate hike and a clear indication of balance sheet reduction being initiated in an upcoming meeting. Since that meeting, the tone has gotten more hawkish as inflation has become a national subject of importance, given the disruption caused by the Russia-Ukraine war. The street is now pricing in a 200 basis points rate hike by the end of the year, say Jefferies’ Chris Wood in his latest GREED & Fear report.

And while historical data suggests that rate hikes don’t significantly correlate with how markets perform, a reduction in balance sheet size, which is closely correlated, can change the picture.2

After a hiatus of 8-9 years, the real estate market in India started showing signs of buoyancy last fiscal. And despite a likely increase in interest rates, which plumbed to a record low, making home-buying more affordable, the demand is expected to remain strong. This has given prominent realtors the confidence to raise prices by a significant measure to pass on the increase in input costs.

The boom in IT services and the significant returns reaped in the equity markets are drivers of this trend, from a consumption and investment perspective, respectively. India’s top home financier, HDFC, recently told CNBC-TV18 that even loans to developers have started picking up, both for construction financing and against lease rentals.

The one-way rally in the equity market was rudely halted in January this year, and the Ukraine war in February only helped accentuate the decline. The swift, sharp drop combined with selling by foreign investors in Indian equities is likely to have spooked many young investors who have never experienced a bear market phase. And even as the frontline indices have recovered much of their losses, the confidence of many is still expectedly shaken.

Given the several headwinds—high inflation, supply disruption, consumption slowdown and a likely monetary tightening by the US Federal Reserve—the mood is likely to remain cautious despite the recent upturn in equities. The tepid volumes in the market seem to reflect this caution. The mood today is not how it was at the start of the fiscal; we’ve gone from euphoric to apprehensive in some months.

Will the market continue to gain and score new highs or will it falter, slip back to lower levels and then languish, like in bear phases? That’s a trillion-dollar question to which there can be no specific answers. For investors, decisions in this market need to be taken with due recognition of the price and time risks.

The Omicron wave gave hope. While the virus spread swiftly, there were few fatalities, and the impact was well managed and coped with. This gave confidence that people could now look to live with Covid. Experts suggesting Covid was entering an endemic stage also pepped up people. The lockdowns were less severe, and life was less disrupted during this wave.

Today, we are returning to the pre-COVID way of living--with a bang on the social front, and slowly, but indeed, on the work front. Big cities like Delhi and Mumbai have dismantled all curbs and even made wearing masks an option. So, FY22 has ended positively, and we hope the coming fiscal will not see Covid rear its ugly head again—especially given the recent spread in China.

It is quite likely that for many years from now, Covid will remain just a distant fading memory, but FY22 will leave its mark on history.

We are wishing you all a healthy and happy FY23!