The month of Volatility and Correction:
The markets in the month of November broadly corrected after the first couple of weeks where it experience high volatility and remained direction less. The D-Street failed to embrace the festive spirit, it started with a spark but quickly fizzled out toward the end. Towards the 2nd half of the month the markets experienced the bears crushing grip as it wiped out any long standing gains made till its lifetime high of 18,600 and this was due to a huge sell off as FIIs offloaded more than Rs.39k Crs worth of Indian equity signifying valuation concerns, turning markets upside down. In addition to this, the cautiousness was heightened by the unenthusiastic response towards India’s largest IPO to date and a resurgence of Covid variant “Omicron” concerns. Even though the Indian market experienced a correction, it did not experience a free fall because of the strong DII support who bought up more than Rs.30K Crores worth of equity in the month of November. The Indian market correct around 4% in November, Nifty closed out at 16,983 level and Sensex closed out at 57,065 level.
Looking at the sectoral performance for the month of Nov, all sectors experienced the correction. There were few sectors which had stellar performance and recovered a bit in the first week of December such as Media, Metal and Small cap and there were a few sectors which was a laggards in the first week such as Pharma and FMCG. Highly commoditized and cyclical businesses such as oil and gas, metals etc. saw bumper revenue and PAT growth although most of it was indicated in their price movement. Banks also delivered improvement in asset quality and collection efficiency while Auto, Chemicals, Consumer durables, and FMGC witnessed stress on their margins owing to inflationary pressure. The sectors which can do well this month include IT, FMCG and Pharma.
Important events & Updates
Few important events of the last month and upcoming are as below:
- The US Fed, which began tapering its bond-buying last month at a pace that would end the program by June, is set to consider compressing that timeline when the policy-makers meet on 14th and 15th of this month mainly due to inflation concerns.
- The MPC of the Reserve Bank of India is meeting on Dec 6th-8th, 2021 to decide on policy action against a backdrop of the omicron variant of covid as well as high inflationary pressures.
- The second quarter (Q2, 2021-22) GDP figures were released on November 30 2021 showed 8.4% GDP growth, which indicates a solid recovery of the Indian economy.
- India Vaccination program – India’s biggest vaccination drive update as on date, number of Covid-19 vaccine doses has crossed 128 Cr and about 34.8% of the population is fully vaccinated. The vaccination is expected to increase drastically in the coming months due to concerns regarding the new ‘Omicron’ variant.
Outlook for the Indian Market
As we had mentioned in our previous market outlook, the Indian market sentiment remains strong in the long term perspective. The market correct last month amid worries of high valuations, inflation and covid driven uncertainties but the Indian market is expected to shrug off these concerns with new positive encouraging economic data such as 8.4% GDP growth in Q2 and manufacturing PMI at 57.6 hitting a 10-month high and the government is also taking up a more proactive stance to tackle the new strain of covid 19 which is will have a positive impact on the Indian economy. The outlook for this month on fundamental & technical are explained.
Fundamental outlook: The Indian market is expected to have a volatile month with a slight positive bias after last month’s correction. Corrections are not out of the ordinary and even the draw down we witnessed recently was under 10%, still lower as compared to the past bull-run average corrections. There are some concerns regarding the new covid variant and worries of high valuation but RBI is still expected to continue its accommodative stance so the Indian market can still see some correction in this month if there are any changes in major macroeconomic factors.
Technical outlook: The broader Indian market corrected around 4% last month and the earnings season was mostly divided with companies showing strong signs of demand growth but at the same time high raw material and input costs adding pressure on margins. Looking at the technicals there is an immediate resistance at 17500 and major resistance around 18000 levels for the month of Dec. There is immediate support at 16500 levels and major support at 16000 levels. The RSI for Nifty50 is around 72 which signifies that it is in the overbought zone.
Outlook for the Global Market
The US market under went correction amid the fears of high inflation and The fed is considering accelerating the bond-buying tapering sooner unfazed the raising new covid variant considering rising inflation which is at 4% currently as the greater risk. The US government released its employment report which has given mixed results. Eurozone inflation continues to accelerate and The EU reports that, in November, consumer prices were up 4.9% from a year earlier, the highest reading since July 1991. Supply chain problems are the principal cause of higher inflation in the Eurozone and this is expected to decline by the end of 2022. The broader Asian markets shares staged a recovery this week on receding worries about the impact of the Omicron variant while Chinese markets were supported by the central bank easing monetary policy. The People’s Bank of China said it would cut the amount of cash that banks must hold in reserve, its second such move this year, releasing the funds in long-term liquidity to bolster slowing economic growth.
Outlook for Gold
In the month of November, Gold broadly was trading sideways and it remained in the 47500-49500 range. Concerns regarding the Omicron variant, Rising global inflation, rupee depreciation against the US dollar and industrial demand for gold is expected to increase the demand for gold and many investors are looking to hedge their risks and hence the outlook for gold remains positive.
What should Investors do?
Even though the Indian market have broadly corrected due to high valuation concerns, accelerating fed tapering and the new covid variant, Investors should however acknowledge that such corrections are nothing out of the ordinary and sometimes even indicator for a healthy market and there also have been some positive news such as the new GDP and PMI data as well has the increased participation by DIIs who are providing strong support even amid the massive FII sell-off, because of their trust in the overall growth story of India Inc. we would recommend investors to maintain proper allocation based on your risk profile as recommended by an advisor. We also believe that investors should avoid aggressive investments for the time being.
This article should not be construed as investment advise, please consult your Investment Adviser before making any sound investment decision. If you do not have one visit mymoneysage.in now.