Latest Indian Share Market Updates & News in Feb 2021

Should inflation worry investors?

From highs of 15431, Nifty has seen a sharp dip till the current levels. Despite Fed Chairman Jerome Powell’s comments on inflation and employment being under control and well below targets, markets didn’t celebrate. Infact, the reassurance of an expansionary policy wasn’t heard at all and technology stocks started giving way on the downside. An abrupt rise in 10-year bond yields to a one year high of 1.6% heightened concerns over inflation which led to the sudden fall in US indices. And if the yields continue to rise, FPIs who have been aggressively investing in Indian markets since the past couple of months could pull the plug and turn their attention back to the States for higher returns. This will have a negative impact on the Rupee which will depreciate further as the demand for the dollar increases. But again this is all a matter to worry about in the future. Currently the fact is that bond yields haven’t reached worrying levels and this is a correction in the long run bull rally. As long as inflation increases and is under control, equities are expected to improve with corrections. Inflation can be looked at like a burning flame, as long as the flame is low there is no harm but on a higher flame there could be risks of getting burnt.

Global commodity price hikes are also adding to the brewing inflation. With the commodity prices on a rise, manufacturers will have to pay more for raw materials which inturn will be translated to the consumers at some point indirectly leading to a rise in CPI. Indian 10-year bond yields have also mirrored the developed nations which have till now shown mild inflationary tendencies. As long as the inflation remains between 4% +/- 2%, RBI’s MPC framework should be able to handle the situation but anything extraordinary will lead to tightening of interest rates. Gold, an inflationary hedge, is currently at its support levels and is also not sending out any warning signals related to inflation. Therefore, investors should not worry about inflation and keep observing the bond market.

Event of the week

While the US is boosting growth by lumpsum stimulus, India is looking to increase jobs and manufacturing through a Production Linked Scheme for sectors. The idea is to offer SOPs and cashbacks, aid exports to extend their support and encourage the Make in India initiative. This will definitely strengthen the asset creation cycle in our country and kickstart the recovery to improve our GDP. The PLI schemes have already been announced for electronics, tech, autos, telecom etc. but this week it was extended to pharma and IT hardware with over Rs. 22,000 Crs worth of sops incrementally aiding value of exports. These initiatives if go as planned can make India a global manufacturing hub with cheap labour which inturn bodes well for the economy and stock markets as a whole.

Technical Outlook

Nifty50 index closed negative, confirming the bearish engulfing pattern formed the week earlier. Since Nifty remains overbought, confirmation of the bearish signal with a bearish evening star on the daily chart does indicate further caution. Markets have also breached the immediate support of 14630 and Nifty is likely to decline further till the next cushion support at 14250 in the short term. Therefore, traders are advised to remain light on the long side.

Expectation for the week

Going ahead, equity markets could remain under pressure as inflationary tendencies continue to worry the investors. Now with expectations of a fresh stimulus in the US there could be more helicopter money in the system. However, how many more liquidity infusions will be needed for the economy to stand on its own only time will tell. Meanwhile, market participants should keenly keep an eye on bond yields and the movement of USD/INR which could undergo some depreciation. Investors in need of liquidity could book profits from certain stock pockets but long term investors should continue to remain invested. Nifty50 closed the week at 14529.15, down by 3.02%.

Bond Yields & Currency To Put Bulls Under Stress!

Markets kicked-off the week on a positive note, however, due to the excess froth in the system markets started to cool off and witnessed selling pressure after touching new highs. An abrupt and sharp rise in domestic as well as global bond yields was the major speed breaker which softened the excitement of equity market participants across the globe. India’s 10-year bond yield rose nearly 17bps this week and US 10-Year bond yields too witnessed a similar rise. As an investor, it is essential to understand that rising bond yields are huge determinants of equity valuations. The taper tantrum of 2013 is world famous for its sudden bond yield rise causing markets to slide as mass bond selling was witnessed. Bond yields are largely inversely proportional to the returns in equity markets. Therefore, when bond yields decline, equity markets tend to outperform and as bond yields rise equity markets returns tend to falter. Hence, such a sharp rise in bond yields this week could be one the major reasons for a break in the equity party.

Another phenomenon which could add to our worry is the possibility of appreciation in USD going forward. If the weekly chart of USD INR is observed, right from November rupee had been appreciating from highs of 74.6/$ to 72.5/$ now. But current week’s performance shows more of a consolidation in the currency pair. In the coming weeks, any kind of depreciation in the rupee could add trigger for further fall in the Indian equities market as it will give a reason to FPIs to book profits. Hence, at such times investors having medium-term view may partially book profits in cyclical stocks and move to quality stocks at lower levels.

Event of the week

With the end of Q3 earnings season of Nifty50 companies, almost 70% companies have managed to beat expectations in topline and PAT levels. There wasn’t one specific sector which drove the earnings season as all across the board companies delivered higher than estimated growth. A couple of reasons such as volume recovery in rural and urban markets, price hikes, lower operating costs along with various cost-cutting measures led to this strong performance. However, going forward earnings could normalize although there will still be growth as our economy opens up completely. Valuations will experience a re-rating as earnings continue to catch up to the price action.

Technical Outlook

Nifty50 made a new high of 15431 but closed the week on a negative note. The index has made a bearish engulfing candlestick pattern which indicates price rejection at higher levels. The bulls are getting tired as the index is trading much higher than its mean levels and at an accelerated rising channel resistance. Hence, a brief corrective dip cannot be ruled out. Nifty50 has broken the immediate support of 15050 and a sustained price move below the support can trigger some more profit booking.

Expectation for the week

Going ahead, investors should remain cautious and observe the sync in global and domestic movement. IPOs are expected to continue flooding D-Street as the sentiment surrounding listing gains continues to remain bullish. Lack of any positive triggers may keep markets dull and range-bound. Therefore, investors are advised to use this opportunity to rejig their portfolios and remove the weaker quality stocks. Fresh investments can be made on dips into quality bets as the market is in a longer term bull rally with currently intermediate top in the making. Nifty50 closed the week at 14981.75, down by 1.2%.

Budget & MPC – Twin Impact on Markets

Post a momentous Budget and MPC week, markets opened with the residual firepower but slowed down and consolidated for most of the week. Despite this, Nifty attained highs of 15,257 for the first time in history. In the past it has been observed that Nifty had taken around 18 years to reach its 7K mark while the next 8K points have been attained only in 7 years. This shows the aggression of inflows towards D-Street and the progress our economy has made, which builds confidence among the FPIs to continue to invest in India. After the pandemic barring September, right from May FPIs have been net buyers of equities in India even when DIIs were net sellers. Even in the first two weeks of February FPIs have continued to invest while DIIs sold equities. In a strange encounter, recent open interest of many large cap stocks in futures have nearly halved from their October-November 2020 peak. This surely indicates that traders are refraining from keeping their positions open and are unwilling to commit at such higher levels. Therefore, it appears that neither the bulls nor the bears are inclined to take the lead in the market implying a lackadaisical nature.

Moreover, SIP inflows for January have shown a decline of nearly 5% MoM while equity MFs have seen seven consecutive months of outflows. This continued outflows from equity funds could be because of profit booking by retail individuals at higher levels. It would be interesting to observe when this aberration in mutual fund flows ceases and domestic investors once again choose the mutual fund route to expose themselves to equity markets.

Event of the week

Brent crude has been making headlines after a stellar start to the week when it touched highs of $60/barrel after almost a year. It has been on an uphill and rose over 50% in a span of 3 months. This massive rise was mainly because Saudi Arabia pledged to deepen production cuts and there is renewed optimism around fuel consumption, given the slowing virus infections due to vaccines and the cold weather. But India being an oil importer has been witnessing an increasing import bill which has led to a stupendous increase in petrol and diesel prices. As an importer, if the upward journey for oil continues at the same rate, our trade deficits would see a huge jump and rupee may witness depreciation pressure.

Technical Outlook

Nifty50 closed the week on a flat note with the index trading in a narrow range. Markets witnessed a brief tug of war between the bulls and bears, as bears pushed the index lower up to 14,970 but could not hold. The market has become overbought in the short term and is also trading at accelerated channel resistance which is why bulls are getting tired and lacking the demand needed to push prices higher. A similar momentum slowdown is being witnessed in many sectoral indices such as BankNifty and Pharma as well as global indices like S&P 500. The market is now constrained within the immediate support and resistance of 14970 and 15250 and a break on either side will dictate the trend for the upcoming week.

Expectation for the week

Since all the major events have been discounted, the week ahead could experience slow consolidation to even a short correction from the bourses. Q3 corporate earnings have now reached its final leg as majority of the top Mcap companies have already announced their results. In all, the earnings quarter has been bullish for the Street as cost reduction measures boosted PAT and pick-up in demand after the opening up of the economy aided the topline. There could be a tussle between the bulls and bears in the short term to gain strength but overall investors should keep a buy on dips strategy. Nifty closed the week at 15163.3, up by 1.6%.

Budget & MPC – Twin Impact on Markets

It was a historic week with Indian markets recording the biggest ever ‘Budget Day’ gains in absolute terms. The power packed week started with an ‘all-round development’ Union Budget and concluded with various forward looking RBI policies. Markets wholeheartedly embraced the various reforms announced with BankNifty seeing a one-side upmove since the pandemic. Although this momentum is momentary since most of the positives have now already been factored in but the fact is, the budget truly aims at reviving growth in the Indian economy by letting go of the fiscal deficit limits. This Budget also made it clear that government’s intentions are bold and they want to power free markets to create wealth by privatization and asset monetization. Furthermore, a capex intensive and infra-led boom is expected to provide buoyancy to our economy which was punctured by the pandemic. With this as a central theme, the government insinuated to put money back in the hands of people through real asset creation rather than simply doling out free monies to the citizens as done by the developed countries to support their slouching economies. All in all, the Budget certainly appeased the majority in the markets with its growth inclined vision and expenditure plans. Investors must keep a close eye on quality names from the cement, heavy industrials, insurance and PSU sectors for the long term as they would be prime beneficiaries from the reforms announced this Budget.

Event of the week

The MPC too complemented the GOI’s aspirational agenda for growth by keeping the repo rate unchanged while continuing with its accommodative stance. In order to supplement a massive Government borrowing program, RBI introduced major breakthrough decisions one of which will allow retail investors to directly invest in G-Secs online. This would entail that the RBI will now compete with other banks to attract retail savings deposits. Moreover, markets cheered on the expectation that inflation will be well within the tolerance band soon. This orchestrated easing of liquidity to support the structurally weak sectors is also a welcome move. All these reforms portray the combined effort of the Government and RBI to instil confidence and growth among the markets and economy to continue its bull rally.

Technical Outlook

Nifty50, which formed a big bearish candle last week, has made an even bigger green candle in the week gone by as bulls are in no mood to give the bears control of the market trend. The overall market breadth remained positive as risk-seeking sentiment prevailed after the budget day. Other global equity indices including emerging markets like Kospi, TAIEX and DAX are all trading near all-time highs while the risk-averse asset classes like Gold and bonds are exhibiting weakness. We suggest traders maintain a bullish bias with an immediate support on the downside at 14580.

Expectation for the week

Post a gung-ho week, culmination of important events might take a breather from the excess optimism and markets may adjust to the corporate numbers lined up in the coming week. A lot of growth expectations have already been factored into the markets and short-term corrections would be a part and parcel in the journey ahead. Banking stocks have had a dream run, one of the best in recent history and are therefore worthy short-term profit booking candidates. Commodity prices except oil are cooling off which may consolidate the metal sector going ahead. Auto sector too is mired with a lot of optimism, however, sequentially growth in sales is seen topping out and one needs to be cautious in this space. Small and midcaps might still have some steam left, nonetheless market participants should focus solely on quality names given the indices have already run up. One should remain invested in quality stocks and wait for decent knee-jerk reaction to add fresh monies. Nifty50 closed the week at 14924.3, up by 9.5%.