The volatile recovery:
The market in the month of December as expected was volatile. In the first couple of weeks of December, the market as the broader sentiment continued to remain ‘Sell on Rise’ with Bears countering the Bulls on every significant upward move. Towards the 2nd half of the month, the market’s performance was relatively positive mainly due to the RBI MPC meet which helped elevate Markets’ mood, as the policy was more dovish than expected. Contrary to Street expectation, MPC’s policy seems to be taking a larger bias towards growth drivers and underplaying inflation as the MPC reduced the inflation forecast for Q4FY22 and Q1FY23 to 5.7%/5% respectively and the markets also embraced the Christmas spirit by recovering significantly from the lows. Even though the FII were sellers and offloaded more than 35k Crs worth equity in December, it did not experience a big fall because of the strong DII support and the accommodative stance from the RBI. The Indian market close the month positively around 1.5%, Nifty closed out at 17,354 levels and Sensex closed out at 58,253 levels.
Looking at the sectorial performance for the month of Dec, the sectors were volatile and some of them gave returns and some of them were laggards. There were a few sectors which had stellar performance such as IT, Pharma and Small-cap and there were a few sectors which were laggards such as Banking, Energy, Realty and Financial Services. As we indicated in our previous month’s outlook both IT and Pharma stocks produced good returns. IT stocks showed strong momentum and were trading at all-time highs backed by Accenture’s splendid performance in the last week of December. The sectors which may 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:
- The RBI MPC meet which was held in December helped elevate Markets’ mood as the policy was more dovish than expected and India will remain a backbencher on this front when compared to other developed economies that have already raised their interest rates and may look at future policies to set a defined roadmap for future rate hikes.
- In December’s FOMC minutes exit strategy for rising inflation was the main focus and the Fed has already retired the word “transitory” when referring to inflation factors and conceded that elevated rates of inflation had persisted longer than they thought and the policymakers have doubled the pace of tapering, cutting their asset-purchase program by $30 billion a month to end tapering by mid-March.
- India’s manufacturing Purchasing Managers’ Index (PMI) fell from November’s high of 57.6 to 55.5 in December and the report stated that the health of the manufacturing industry improved in December, with new work growth and production remaining sharp despite losing momentum.
- India’s Vaccination program – India’s biggest vaccination drive update as on date, the number of Covid-19 vaccine doses has crossed 147 Cr and about 44.5% 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
In the 3 trading days of Jan, the markets broadly have performed well and produced more than 3% led by Banking stocks mainly due to the return of the FII and relative strong support from DII as well. Last month was volatile and the markets overall performed positively mainly because of the “Santa Claus rally” during Christmas but this month even though in short term there might be a small rally, it is expected to consolidate because of the new lockdown measures undertaken by several state governments due to the onset of ‘Omicron’ variant and the rapid tapering news from the FOMC meeting which has already caused Nasdaq plunging more than 3% in its biggest one-day percentage drop since last February on Wednesday. The government is taking up a stance to tackle the new strain of covid 19 but the outcome of the stance remains uncertain as the number of cases seems to be increasing rapidly.
Fundamental outlook: As indicated in our last outlook Indian markets were volatile with a slight positive bias and in this month after a short-term rally, the rest of the month is expected to see some consolidation. 2021 was a phenomenal year with Nifty50 soaring over 24%. In the past 10 years, whenever Nifty has provided returns of over 15% in a calendar year, the following year has been a Killjoy but India’s narrative is quite strong this time both in terms of macros and India Inc.’s fundamentals. Corrections are not out of the ordinary and even the drawdown we witnessed recently was under 10%, still lower as compared to the past bull-run average corrections and there are some concerns regarding the new covid variant and worries of high valuation. The broader Indian market performance was a mixed bag but by the end of the month, the markets were slightly positive. The auto sales figures, where a mixed set of numbers are expected, However, despite the near-term headwinds, the long-term view is largely positive as most automakers predict a progressively improving chip shortage situation
Technical outlook: Looking at the technicals there is immediate resistance at 18000 and major resistance around 18400 levels for the month of Jan. There is immediate support at 16900 levels and major support at 16400 levels. The RSI for Nifty50 is around 75 which signifies that it is in the overbought zone.
Outlook for the Global Market
A “very tight” job market and unabated inflation might require the Federal Reserve to raise interest rates sooner than expected and begin reducing its overall asset holdings as a second brake on the economy and this might cause some correction in the near term but if the supply chain issue starts to ease by mid of the year, then it might reduce some of the inflation pressures. Eurozone had experienced slower economic growth in the final months of 2021 due to supply-side bottlenecks and high (energy price) inflation are restraining growth in industrial production and also reducing consumers’ real disposable income, even as a new coronavirus wave is hitting the region. Supply chain problems are expected to decline by the end of 2022 and growth is expected to go back above-trend rates, supported by monetary and fiscal policy as well as a continued labor market recovery. In 2022, headline CPI inflation across Asia is expected to rise to 3.0% y-o-y from 2.1% in 2021, but this is still within central bank targets or historical averages. Lower inflationary pressures, reflecting a weaker demand recovery in Asia, should support gradualism on monetary policy normalization.
Outlook for Gold
In the month of December, the Gold market broadly was trading sideways and it remained between 47000-49000 levels. Concerns regarding the Omicron variant, Rising global inflation, rupee depreciation against the US dollar, and industrial demand for gold are 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?
The year 2021 ended with a bang and the rally during the last week of December helped the market to produce an overall return of over 24% but in the past 10 years, whenever Nifty has provided returns of over 15% in a calendar year, the following year has been a muted with lower returns. India’s narrative is quite strong this time both in terms of macros and India Inc.’s fundamentals such as the new GDP data, the increased participation by DIIs who are providing strong support, and various government initiatives such as PLI, National Monetization Pipeline, Make in India, etc. which has aided in digitization leading to many structural changes in businesses making them much more transparent and consistent. The balance sheet of corporate India also has been repaired and asset quality issues for banks are being addressed. The deleveraging by companies paves the way for a capex upcycle and government spending will lead to its further acceleration. All of this is expected to lead the Indian markets to post healthy returns in 2022 as well but many of the valuations are already priced in and there are still concerns regarding the Omicron variant which has been spreading rapidly which may cause further lockdowns. The overall growth story of India Inc. remains positive in the longer 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. We would also recommend investors to avoid aggressive investments for this quarter. Many big-name IPOs are coming up soon such as LIC, which might provide Investors with long-term Investment or listing gains opportunities.
This article should not be construed as investment advice, please consult your Investment Adviser before making any sound investment decision. If you do not have one visit mymoneysage.in