The month of correction:
The market in the month of January as expected was volatile. In the first couple of weeks, the market maintained its bullish stance and Nifty claimed the 18000-mark again. Towards the 2nd half of the month as we had indicated in our previous outlook it was in a correction mood and corrected more than 7% after its 18k climb which was mainly due to the inflation, rising oil prices due to geopolitical issues, and the feds hawkish stance which hinted the markets to price in a rate hike by Fed sooner than expected. In the first week of Feb, the Indian markets were driven by the non-populist and CAPEX-focused budget. 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. The FII were sellers in the month of January and offloaded more than 41k Crs worth equity in January, which is the highest since March of 2020. The Indian market closed the month slightly positively around 0.5% even after the correction. Nifty closed out at 17,339.85 levels and Sensex closed out at 58,014 levels.
Looking at the sectorial performance for the month of Jan, most of the sectors corrected especially the Tech sector which corrected more than 10%. There were a few sectors that had good performance even amidst the correction such as Banking, Energy, and Auto but there were a few sectors that were laggards such as IT, Pharma, and FMCG. Sectors such as trade, hospitality & travel, auto & logistics, communication, have all been severely impacted by the pandemic and are still struggling and some of the issues of these sectors are expected to be resolved by the CAPEX focused budget. The sectors which can do well this month include IT, FMCG, and Bank.
Important events & Updates
A few important events of the last month and upcoming are as below:
- India’s Gross Domestic Product (GDP) contracted by 6.6% in FY21, according to the National Statistical Office’s first revised estimate released on January 31. The bulk of the upward revision for the GDP in FY21 seems to have come from the manufacturing sector, which was earlier estimated to have contracted by 7.2% in FY21. However, as per the first revised estimate, the manufacturing sector contracted by a mere 0.6% last year.
- FOMC meeting on Feb 10 is the important event for this week, the expectation is that the government will continue its accommodative stance.
- The Union budget for 2022 in continuation with the rationale of the previous year’s Budget 2021-22, provides a rather indirect economic stimulus via the unconventional counter-cyclical fiscal policy. Although the 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.
- The IHS Markit India Manufacturing PMI was down to 54.0 in January 2022 from 55.5 in December 2021, below the expected 54.6. This pointed to the weakest growth in the sector since last September amid COVID-19 disruptions but stayed above its long-run average at 53.6.
- India Vaccination program – India’s biggest vaccination drive update as of date, the number of Covid-19 vaccine doses has crossed 170 Cr and about 52.9% of the population is fully vaccinated.
Outlook for the Indian Market
In the first week of Feb, the Indian markets were on a short rally of about 2% mainly due to the global market sentiment and the budget. This year’s CAPEX-focused budget is expected to lay the foundation for future growth. The sectors that 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, and the EV sectors, by implementing a battery swapping policy. Battery swapping is likely to gain acceptability in commercial applications like e2W and e3W and will help faster penetration in these segments if implemented effectively. The outlook for this month on fundamental & technicals is explained.
Fundamental outlook: The month of Feb is expected to continue being volatile unless there are any major changes in macro-economic factors. The first month of 2022 saw some correctors and there might be a few more minor corrections in this quarter but corrections are healthy for the market. The market is volatile mainly due to the fear of US interest rate hikes, rise in bond yields, aggressive selling by FIIs, and the US/Russia geopolitical tension.
Technical outlook: The broader Indian market for the month of Jan remained slightly positive and many sectors performed positively even amidst the selloff. Total domestic auto sales stood at 1,49,656 units last month as against 1,70,757 units in December 2021, down 12%, while total exports were also down 16% at 2,13,787 units as compared to 2,54,442 units in the year-ago month. However, despite the near-term headwinds, the long-term view is largely positive as most automakers predict a progressively improving chip shortage situation by the end of 2022. Looking at the technicals there is immediate resistance at 17900 and major resistance around 18400 levels for Feb. There is immediate support at 16900 levels and major support at 16300 levels. The RSI for Nifty50 is around 72 which signifies that it is in a slightly overbought zone.
Outlook for the Global Market
Inflationary pressures in the U.S. continued to heat up at the start of the year but if the supply chain issue starts to easy by the mid of the year then it might reduce some of the inflation pressures. The US consumer price index probably jumped 7.3% in January from a year ago, the largest annual advance since early 1982. The US government’s latest employment report indicates momentum in the labor market and faster wage growth that spurred bets that the Fed may be more aggressive in raising rates. Eurozone’s three major economies released data on GDP growth for the fourth quarter and the results were varied, Germany’s real GDP fell 0.7% from the third to the fourth quarter, likely due to restrictions imposed during the delta outbreak of the virus, France’s real GDP increased 0.7% from the third to the fourth quarter. This is a sharp deceleration from 3.1% growth in the previous quarter and Spain’s real GDP grew 2% from the third to the fourth quarter, a very rapid pace following 2.6% growth in the previous quarter. China’s economy is mainly driven by exports and industrial production and its services sector, domestic consumption, and investment have not yet fully recovered. Latest economic data from 2021 show that the country is facing mounting downward pressures, mainly due to a property downturn, shrinking demand, and diminished support from exports but some of this pressure is expected to be relieved by the end of the year. Supply chain problems are expected to decline by the end of 2022 supported by monetary and fiscal policy as well as a continued labour market recovery
Outlook for Gold
In the month of January, the Gold market broadly was trading sideways and it remained between 47000-49000 levels. Concerns regarding rising global inflation, geopolitical issues, industrial demand for gold and high volatility are expected to increase the demand for gold as many investors are looking to hedge their risks and hence the outlook for gold remains positive.
What should Investors do?
The Indian market is currently in line with the global market but 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 in the near term but the overall growth story of India Inc. remains positive in the long term even if it sees some consolidation in 2022. We would recommend investors to maintain proper allocation based on your risk profile as recommended by advisors and new investors can start investing through SIPs instead of investing in bulk. We would also recommend investors to avoid aggressive investments for this quarter and brace themselves for high market volatility to persist throughout the year as various monetary and fiscal policy changes are set to take effect in 2022.
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