Volatility is the order of the day/month:
The markets in the month of March were very volatile with a positive bias. The markets recovered the lost ground last month after the initial fall due to the Ukraine-Russia conflict which started on the 24th of Feb as there were some signs of de-escalation, together with the unfazed conviction of the domestic investors who have been incessantly absorbing the exodus of foreign investors made our market relatively resilient and allowed it to be in tandem with global peers. The FII were sellers in the month of Mar and offloaded more than 43.3k Crs worth of equity but the selling slowed down towards the end of the month. The Indian market closed the month in a positive territory, with an uptrend of 5.17%. Nifty closed out at 17400 levels and Sensex closed out at 58500 levels.
Looking at the sectorial performance for the month of Feb, almost all the sectors performed well. Amidst them, there were a few sectors that gave stellar returns such as metals, realty, commodity, and banking. The ongoing conflict between Ukraine and Russia is having unintended consequences on metal and commodity prices as companies start to pass the rising raw material prices to consumers to address margin concerns. Auto OEMs, FMCG players, steel majors, airlines, and paper companies have also already hiked their prices and even indicated further increases. These hikes will be fully reflected in the inflation print for the month of April. The sectors which can do well this month include Metals, commodities, and Realty.
Important events & Updates
Important events & Updates
A few important events of the last month and upcoming are as below:
1) In the first RBI’s MPC meet of FY22-23, the RBI has decided to keep the benchmark interest rate unchanged at 4% and retain its accommodative stance for now even though the Inflation has exceeded the target level of 4%-6% but if the inflation gets out of control then it will withdraw its accommodative stance.
2) The RBI has revised its inflation estimates for FY23 to 5.7% from 4.5% and it has also lowered the FY22-23 GDP growth to 7.2% from 7.8% due to the geopolitical situation in Eastern Europe.
3) India in the month of March achieved the $400 bn export target for the first time, it is mainly attributed to increasing metals and commodity prices since imports also reached an all-time high of $600 bn.
4) The RBI has also decided to restore the width of the liquidity adjustment facility (LAF) corridor to 50 bps, the position that prevailed before the Covid-19 pandemic. The floor of the corridor will now be provided by the newly instituted standing deposit facility (SDF), which will be placed 25 bps below the repo rate at 3.75%. SDF allows the RBI to absorb liquidity from commercial banks without giving government securities in return to the banks.
5) India Vaccination program – India’s biggest vaccination drive update as on date, the number of Covid-19 vaccine doses has crossed 185Cr and about 60.6% of the population is fully vaccinated. This is becoming more important as there has been a resurgence of the virus in China.
Also read : All about investing in Sovereign Green Bonds
Outlook for the Indian Market
In the near term, Macroeconomic factors will be driving the market. Since interest rates have bottomed out and a slew of rate hike await us due to raising inflation which will only lead to a spike in bond yields and as we can see currently in the US markets rising yields is causing funds to flow out of the bond market and into the equity market which is having some part in the current rally of the market and this expected to be mirrored in the Indian market as it has already seen that in the past 2 weeks FII have been bought more than 20K Crores of equity but this is expected to remain for the short term as concerns regarding the valuations still persist. The outlook for this month on fundamental & technical is explained.
Fundamental outlook: The month of April is expected to remain volatile with Marco factors driving the markets but all eyes will be on the corporate earnings of tech companies this week and if they are able to maintain their growth and margins then this might continue positive bias as the market sentiment. The cleansed balance sheets, and improving asset quality of the banks is the reason for sectors to be largely optimistic, this meltdown in our markets seems rather transitory but there is a risk of the ongoing conflict spiraling out of control the longer it persists.
Technical outlook: The broader Indian market was in line with the global sentiment in the month of March. The increasing DII participation has increased the market resilience but the comings weeks are expected to experience elevated volatility as investors will be keenly monitoring inflation figures in the United States and China and Indian CPI which will be a key domestic factor to monitor along with tech earnings. Looking at the technical, there is immediate resistance at 18000 and major resistance around 18500 levels for the month of April. There is immediate support at 16800 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
As the inflation in the US is rising, the Fed for the first time in 4 years raised its rate by 25 bps, and the hikes are expected to increase throughout the year and the Fed is also expected to reduce its balance sheet to tame the current sky-high inflation. The Eurozone economies entered the New Year on a weaker note than previously projected as it might see some headwinds to growth being intensified as the resurgence of the covid pandemic as well as the ongoing conflict which might exacerbate the existing issues hence the near term prospect of EU remains uncertain. The Chinese government has set the GDP growth target to 5.5% for the FY22-23 but the resurgence of the covid wave has caused large scale complete lockdowns in major cities such as Shanghai because of the government’s zero covid policy and this along with the geopolitical risk dimension has cast a shadow over Chinese companies with overseas exposure as the West broadens its sanctions against Russia, can cause disruption in the Chinese economy.
Outlook for Gold
In the month of Feb, the Gold market performed negatively with a nearly 3% drop but the demand for gold as a hedge against rising inflation still remains strong hence the outlook for gold remains positive for the rest of the year.
What should Investors do?
The Indian market is currently indecisive and the RBI’s projection for the GDP growth and inflation is based on oil price remaining at $100 per barrel but any deviation from this will cause major moves in the market and in the near term for this month the corporate earnings and Marco factors will be the driving force hence we would recommend the investors to not go for any aggressive investments and keep an eye out for the major economies inflation figures and corporate earnings, investing in companies with solid balance sheet instead of growth companies will be a good strategy.
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