An opportunity amid crisis?
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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.
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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.
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Event of the week |
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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.
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Technical Outlook |
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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.
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Expectations for the week |
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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%.
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Market dynamics are changing, your portfolio
should too!
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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.
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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.
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Event of the week |
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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.
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Technical Outlook |
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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.
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Expectations for the week |
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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%.
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As Goes January, how will the year go?
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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.
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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.
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Event of the week |
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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.
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Technical Outlook |
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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.
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Expectations for the week |
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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%.
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Has your portfolio budgeted for the budget?
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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.
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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.
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Event of the week |
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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.
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Technical Outlook |
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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.
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Expectations for the week |
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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%.
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