An opportunity amid crisis?

This week markets globally witnessed carnage owing to the war like situation and geopolitical tensions between Russia and Ukraine. Our frontline indices not being immune to these global jitters faced a similar atrocity. This led to a 3.58% decline in the week and as fears intensified, India VIX touched its highest level since June’20. Although currently all seems gloomy, one silver lining that can be looked at as results season bid adieu is the earnings performance of Nifty for the latest quarter. Earnings, which help gauge the strength of the market, continued to be robust and constituents of Nifty witnessed more beats than misses. The top line as well as bottom line of Nifty constituents grew at strong double-digit rates on YoY basis and at healthy rates sequentially.

On the sectoral front, capital goods, banks, power, IT, metals performed rather reasonably well and auto, pharma, cement are among those which witnessed a difficult quarter. The pain-point for many industries was high inflation which resulted in narrowing of margins. Going forward, given the current spike in commodity and crude prices due to the geo-political situation, inflation can elevate further. This certainly poses a short term challenge for companies and can delay the recovery in the economy. However, considering that the corporate earnings have remained resilient, the commentary across sectors was largely optimistic, and that India has multiple structural tailwinds playing out, this meltdown in our markets seems rather transitory. While such corrections do instil panic, they also give a buying opportunity for long term investors. This echo is also supported by the actions of DIIs, who have absorbed all of the selling undertaken by FIIs from Monday to Thursday this week. Investors are therefore advised to find the calm amid this storm and build up long-term positions in quality companies in a staggered manner.

Event of the week

Equities witnessed extreme volatility and commodities aren't far behind. This week multiple commodity prices soared to stratosphere due to the sanctions being imposed on Russia. For instance, Brent crude touched $100/barrel for the first time since 2014 driven by fears of tight supplies and increasing demand. Further, as Russia produces ~6% of the world’s aluminium and 7% of the world’s mined nickel, signs of already existing bottlenecks worsening catapulted their prices. Aluminium prices rose to all time highs while those of Nickel are close to decadal highs now. Moreover, as investors sought to save haven to protect their capital, gold prices escalated to 13 months high. As these price spikes remain a short term overhang, it is vital to be watchful of companies that are directly impacted in order to decide on investment actions. However, as global uncertainty eases, these stretched prices are likely to mellow down.

Technical Outlook

Nifty50 index closed on a strongly negative note for the week breaking below the crucial support zone around 16,800 levels. Albeit the sharp rebound seen on Friday, the index failed to recoup all the losses. Also, there has been structural damage to the ongoing major trend due to which this recovery seems less sustainable. The bounce, hence, can be a good exit opportunity for short-term traders. Until Nifty breaks above 17,500 levels, we suggest traders maintain a bearish outlook. Immediate support and resistance are now placed at 16,200 and 16,900 levels.

Nifty50 Update 25 February 2022

Expectations for the week

Prevailing geopolitical tension would continue to take the centre stage and will be the major force guiding the direction of the market and sentiment of the investors globally. If a war like situation between Russia and Ukraine persists, markets may dive deeper in the red sea they currently are. Also, D-Street will be influenced by an eventful domestic economic calendar as quarterly GDP numbers, auto sales numbers and manufacturing PMI figures are expected in the coming week. Given multiple trigger points and the increasing uncertainty, investors are advised to tread with extreme caution and avoid any aggressive bets. Nifty50 closed the week at 16,658.40, down by 3.58%.


Market dynamics are changing, your portfolio should too!

D-Street began this week with the worst single day drop in the benchmark indices since April 2021. Markets have been sharply volatile and the drop in Nifty from its high’s is certainly not indicative of the wealth erosion in many retail investor portfolios. If we were to decode the possible reasons for the drastic shift in sentiments, the most touted one is the Fed rate hike which tends cause major FII outflows. With FIIs being on a selling spree in the past few months and considering the anticipation surrounding Fed’s move, this risk roughly seems priced in. In fact, there are some evidences which indicate that Indian equities have largely performed well even amid rate hike cycles. For instance, in 2015-16 when talks of rate hikes were doing the rounds, despite some corrections, markets continued to rise.

Soaring inflation has also been the talk of the town, which fortunately in India, does not seem as ugly. With RBI’s undeterred comfort on inflation, this reason also is unlikely to be the linchpin of increased volatility. Lack of demand in gold, which historically is known to be an inflation hedge, also concurs well with this argument. Moving on to the geo-political tensions, the behavior of market participants is not consistent with this emerging risk too. Generally, when such uncertainties cloud the skies, defensive stocks are hoarded. This certainly is not the case currently and on a year-to-date basis, cyclicals like Nifty Auto, Metals, Energy have outperformed defensives like Nifty FMCG, Nifty Pharma. Therefore, while it’s only in anybody’s realm of imagination to predict market movements, this time around it seems that Mr. Market needed a reason to prick the bubble of excess stock prices. Resultantly, while Nifty has fallen nearly 6.5% since October, many stocks, especially the ones with higher retail interest, have seen even a more than 50% drop. Retail investors should therefore take a cue and instead of following the herd, should wisely build their portfolios to bear such market blows.

Event of the week

During the week, the spotlight was on India’s retail inflation which boiled to 6.01% in January 2022, marginally beyond RBI’s upper threshold limit of 6%. This is attributable primarily to the unfavorable base effects and this spike was more so driven by hardening of prices of food, beverages, clothing and footwear. Even though, as indicated by our central bank, inflation is likely to peak in this quarter, it may not soften as quickly as projected by it and hence becomes a key monitorable to decipher MPC’s normalization glide path. While in India inflation has not yet become overly uncontrollable, US continues to face decadal high inflation. January 2022 inflation in US stood as high as 7.5% which paves the way for an even more hawkish stance to be adopted by Fed. In order to tame the soaring inflation, the expectation now is that there may be more than a 25 basis points hike in the upcoming FOMC meet.

Technical Outlook

The Nifty 50 index ended the week slightly lower. The short-term trend is gradually turning bearish, although the solid support level of 16800 on the downside is still holding quite strongly. The BankNifty index, on the other hand, is yet to confirm any bearish structure. The market is presently stuck in an uncertain zone between 16800 and 17600. Any breakout/breakdown on either side will very certainly spark a new course of action. We recommend that traders retain a relatively bullish outlook and begin longs only around the support zone, with strict stoploss below 16800.

Nifty50 Update 18 February 2022

Expectations for the week

With earnings season behind us and given the overall sentiments, markets are expected to move in sync with global peers in the coming week. A close eye will be kept on the developments concerning the Russia – Ukraine crisis and considering the inflation overhang, market participants will also observe movements in energy prices. Back home, due to the monthly expiry, volatility would be the main course of action for D-street. Further, given the assembly polls, political uncertainty will prevail. Investors are advised to remain on the sidelines till some stability in restored. The Nifty50 closed the week at 17,276.3, down by 0.57%.


As Goes January, how will the year go?

Indian markets experienced high volatility this week with a tilt towards pessimism as the participants baked in the possibility of a faster than expected Fed rate hike given the hot US inflation. Globally, markets have largely remained choppy since the start of 2022 and this week was no different. While historically, January has been a month with favorable returns for the US markets, this time around the bears outweighed the bulls as they tightened their grip. Interestingly, there is a belief that January’s returns indicate US market’s performance for the remaining year, popularly called ‘As Goes January, So Goes The Year’. This phenomenon has transpired nearly 75% of the times in over a century with the S&P 500. If this were to materialize this year as well, then per January’s performance it seems that bears will have an upper hand.

When tested on Indian markets, it was seen occurring nearly 90% of the time from 1992 to 2002. However, the frequency of occurrence of this phenomenon has reduced by more than half in the past decade. This decrease can be majorly attributed to the fact that given the strong footing our economy, Indian market’s dependence and correlation with the global markets has been abating. Further, India’s reliance on foreign flows has reduced by and large with increased participation from DII and retail investors. As a matter of fact, this January, FIIs sold equities to the tune of Rs 33,303 crore, recording their largest selloff since March 2020. Nevertheless, the Indian market remained resilient and Nifty50 fell by a mere 0.08% in January when compared to an over 5% fall in S&P 500. Though, this indicates that the subservience of D-Street to global peers has moderated, one has to be cognizant of the fact that it is not completely immune to the global market sentiment. Thus, given the global narrative, investors should continue to tread with caution and be wise with their investment choices.

Event of the week

With an unexpectedly dovish stance, the RBI has once again avoided joining the choir. The central bank maintained a supportive stance, keeping the policy rates unaltered and emphasized on the importance of broad-based economic recovery. Further, the RBI appears to be of the opinion that inflation is transient, as seen by its lower-than-expected inflation forecasts for FY23. This runs counter to the global trend and raises few concerns, given the backdrop of soaring crude oil and commodity prices. With global central banks being emphatic that they intend to begin policy tightening, the RBI's lack of direction on this front leaves Indian market exposed to the Fed's maneuver in March. The policy however cheered the bond market as the 10-year G-Sec yield moved back to pre-budget levels. From equity market perspective, the unaltered reverse repo rate bodes well for the credit cycle, which has just lately begun to build up, benefiting banks, NBFCs, HFCs, and real estate players.

Technical Outlook

Nifty 50 closed the week on a mildly negative note and continued to consolidate in a narrow range. In line with past few weeks, this week as well the index faced a strong resistance and failed to sustain above its 20 DMA and is now contained in a range of 17,050 to 17,800. A decisive break from this range is likely to set the next course of action going ahead. Most of the global indices are also exhibiting a bearish undertone. We suggest traders to maintain a neutral outlook and create new longs only on dips or around immediate support levels.

Nifty50 Update 04 February 2022

Expectations for the week

From a global standpoint, investors will focus on having a better perspective on the Fed's move, as minutes of the latest FOMC meeting are to be released. Additionally, another key monitorable will be China's inflation data, which has recently shown signs of easing. Back home, with RBI downplaying inflation and amid increasing crude and commodity price overhangs, D-Street investors will be keeping a careful eye on the domestic inflation rate to decipher the possible future trajectory. Considering these events, markets are likely to continue to remain volatile and range-bound. Investors are advised to sit tight on their quality investments and avoid aggressive bets till a clear direction emerges. The Nifty50 closed the week at 17,374.75, down by 0.81%.


Has your portfolio budgeted for the budget?

Indian markets started the week on a positive note as they edged closer to the big B-Day. Driven by the non-populist and capex focused budget, markets did extend the rally. However, the momentum seen in the first 3 trading sessions could more so be attributed to the secular pick-up in the global market sentiments early in the week, rather than the budget. This can be inferred from the fact that the Union Budget's effect on short-term market performance has been dwindling with Budget Day volatility standing at 9% in 2022 when compared to nearly 18.7% in 2010.

Although budget’s short term influence on the broader markets has been diminishing, it does lay a foundation to determine which pockets of the economy are likely to benefit from a mid to long term perspective and offers an opportunity to position one’s portfolio accordingly. This time, the sectors that are likely to outweigh the others from the budget include the infrastructure sector, thanks to the government’s continued thrust on developing world-class modern infrastructure including highways, railways, mass transport ways and logistic parks. This not only is expected to increase the pipeline of orders for listed contractors and infra developers but will also bode well for capital goods, cement, logistic and commercial vehicle companies. Further, the companies linked to the electric vehicle space will also bloom under the government’s initiative of boosting the efficiency of the EV ecosystem. Additionally, plays on affordable housing such as housing finance companies, mass market building material companies will also be key beneficiaries. Therefore, investors can look to pick up stocks of strong companies from the segments that will be positively impacted by the budget.

Event of the week

In the week gone by, India’s 10-year government bond yield soared to its highest level in two years at nearly 6.9% as investors became apprehensive by the higher than expected net borrowings that the budget accounts for. Further, the absence of budget announcements towards easing of India’s inclusion in the global bond index also aggravates concerns on the demand side. These factors coupled with the clampdown on global liquidity, led to the bond selloff. A significant increase in long-term sovereign bond yields will trickle down to raising borrowing costs for the rest of the economy as well. If the yields continue to rise, the RBI may have to jump in as a buyer of bonds to cool off the effect and this now puts RBI in a challenging position as buying bonds would call into question the gradual policy normalisation underway.

Technical Outlook

Nifty50, driven by budget and global sentiments, rallied during the first half and closed the week on a positive note. However, the index is facing resistance around its 20 day EMA and now seems to be forming a lower top. On the contrary, the BankNifty index has made a higher high and exhibiting a bullish undertone due to recent outperformance of the PSU banks. As long as the Nifty does not break below 16,850, it is more likely that the lower top formed on the daily chart may end up being a minor decline. Considering these factors we suggest traders to maintain a neutral to a mildly bullish outlook for the coming week. Immediate resistance on the higher side is placed at 17,800 levels.

Nifty50 Update 04 February 2022

Expectations for the week

The key event that the markets will watch out for is the RBI's MPC meeting. Unlike its global peers, RBI has been behind the curve and has been downplaying inflation risks. With higher government borrowing announced in the budget, soaring global inflation and the lag in private consumption and investment, D-Street will monitor the future path of monetary policy. On the global front, markets continue to be choppy and investors will be looking for hints from the US inflation data, to determine their course. Amid this increasing volatility, investors can continue to accumulate quality stocks in a SIP format. The Nifty50 closed the week at 17,516 up by 2.42%.