A massive sell off in the Indian markets, fuelled by global inflation worries, further reaffirmed by the 75 basis point rate hike by the Fed, caused a whopping 6 percentage point fall in Nifty and 5.5 per cent fall in BSE Sensex Index, this week. This is supposedly the biggest hike by the Fed since 1994. Last week, India’s Central Bank – Reserve bank of India announced a 50 basis points increase in policy rates and expressed concern over rising inflation.  For India particularly it’s been a double whammy - rising inflation and falling currency against US dollar- given the country’s heavy dependence on imports for meeting its most of its energy demand. And, the spiralling effect of energy prices on the consumer inflation may further lead to weakness in the equity markets in the near future.

Interestingly, the sell off this week was broad based and not limited to the benchmark indices. Of the companies that constitute the BSE500 Index, the share price of about 92 per cent of them declined over the past week. Also, stocks and sectors that were possibly considered defensive – not to be impacted much by inflation –saw their prices tumble. S&P BSE IT Index tumbled 10 per cent since June 10, even as the weakness in rupee against US dollar continued.    

Top Losers

Within the IT space, the stock of Mastek, which is in the enterprise digital and cloud transformation space, fell by nearly 24 per cent in the past week. The fall in the stock price has been largely driven by the weakness in the market. Mastek has significant presence in the UK – particularly the public sector. The UK business, especially the healthcare segment, which until last quarter was a drag, has now turned around and has good order wins in the 4QFY22.

It plans to increase its footprint in the private sector, which will help improve its profitability. The company is also looking to scale up its US business and Oracle cloud business in Europe and UK as well through Evosys, which it acquired in 2020. Mastek is targeting revenue of USD 1 billion in FY26, versus $ 293 million in FY22, implying a 36 per cent CAGR over the next 4 years. The stock currently trades about 17 times and 14 times its estimated FY23 and FY24 earnings respectively.

Tanla Platforms is yet another player in the cloud communication solutions space whose stock took a beating this week, shedding over 15 per cent. The Hyderabad-based company offers messaging, voice, ioT and cloud communication services.  After a muted performance in 4QFY22 due to weakness in enterprise business, it was offset partly by better performance by its cloud platform business.

While its Trubloq platform is expected to continue growth, the newer Wisely platform (Vodafone and truecaller business messaging) should help revenue growth and profitability in the near term. A favourable revenue mix in the future with higher contribution from better margin product business should improve the quality of earnings for the company. The stock currently trades about 22 times and 18 times its estimated FY23 and FY24 earnings respectively.       

After a dream run for the stock of Mangalore Refinery and Petrochemicals Ltd (MRPL), a subsidiary of ONGC, over the last two weeks, gaining almost 51 per cent in the previous week, the stock shed about 21 per cent this week. The fall in the stock price, was largely in line with the broad market sentiment. The stock’s up move was largely driven by expectation of strong performance of its refining business on the back of record increase in Singapore Gross refining (GRM) margin, which scaled a new peak of $24.5 per barrel on June 6.

Singapore GRM being a good proxy for the margins of Indian oil refining companies, Indian refiners are expected to report a strong performance in the June 2022 quarter. MRPL with a refining capacity of 15 million tonnes per annum should benefit from higher refining margins. The stock currently trades about 8.6 times and 10 times its FY23 and FY24 estimated earnings.  

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