The markets in the month of Feb were broadly on a correction phase & experienced very high volatility during the month, The first week of started on a positive note due to the CAPEX focused budget but soon after it in the 2nd week, whatever gains were made during the first week were wiped out as the markets experienced high volatility and corrected due to expected Fed rate hike given the high US inflation numbers and rising oil prices due to geopolitical issues.
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In the last couple of weeks of feb, the markets broke the first resistance of 16900 and even a major resistance of 16300 levels and experienced the worst single-day drop (~ 5%) this year, this was due to the start of the military conflict between Ukraine and Russia and since then the market has been correcting and have been experiencing very high volatility as the news from the conflict seems to be currently driving the market.
The FII were sellers in the month of Feb and offloaded more than 45k Crs worth equity, which is the highest since March of 2020. The Indian market closed the month in negative territory, with a drop of 4.75%. Nifty closed out at 16700 levels and Sensex closed out at 56200 levels.
Looking at the sectoral performance for the month of Feb, almost all the sectors were down and experienced high volatility. Metals and energy were the only sectors which performed positively last month and this was due to the increase in prices due to the escalation of the conflict. As the company’s completed reporting their earnings, the top line, as well as bottom-line of Nifty constituents, grew at strong double-digit rates on a YoY basis and at healthy rates sequentially and capital goods, banks, power, IT, metals performed rather reasonably well and auto, pharma, cement are among those which witnessed a difficult quarter. The sectors which can do well this month include IT, Metals and Energy.
Important events & Updates
A few important events of the last month and upcoming are as below:
1) The Auto sales numbers were out last week as it was a mixed bag, the 2 wheeler segment was red even though wholesales have improved on a month-on-month basis but the PV & CV numbers were positive as chip shortage and supply chain constraints improved.
2) India’s economy expanded by 5.4% during the third quarter (Q3FY22) as the official gross domestic product (GDP) data for the October-December quarter was released; this was below the market expectation of 6%.
3) India’s manufacturing sector saw an expansion in output and new orders in February as per the PMI rose to 54.9 for the month, from 54 in January.
4) India’s trade deficit widened to $ 21.2 billion in February of 2022, from $ 13.1 billion in the same period last year and $ 17.42 billion last month due to a surge in oil and commodity prices.
5) India Vaccination program – India’s biggest vaccination drive update as of date, the number of Covid-19 vaccine doses has crossed 179Cr and about 58.0% of the population is fully vaccinated.
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Outlook for the Indian Market
In the near term, the ongoing conflict between Russia and Ukraine is steering the market and this has caused a surge in oil price due to which India’s trade deficit has also increased and since India imports petroleum products, precious metals fertilizers from Russia and 84% of India’s sunflower oil import is from Ukraine, the commodity prices have also surged, Brent had earlier skyrocketed to as high as $139.13 per barrel – it’s highest since July 2008. On the macroeconomic front, investors will be closely watching the inflation figures for China and United States. The commodity prices have also risen The outlook for this month on fundamental & technicals are explained.
Fundamental outlook: The month of March is expected to continue being volatile but the market might break down below 16000 support level if there is any further escalation between the West and Russia but this issue still seems only to be near term and 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.
Technical outlook: The broader Indian market for the month of Jan dipped more than 4% and most sectors performed negatively even amidst the huge selloff from FIIs, DIIs have been able to absorb them because of the increasing DII participation in recent years. Despite the near-term headwinds, the long-term view is largely positive due to the expected resolution of the geopolitical issue in the near term and supply chain constraints in the medium term. Looking at the technicals there is immediate resistance at 17300 and major resistance around 17900 levels for the month of Feb. There is immediate support at 16200 levels and major support at 15500 levels. The RSI for Nifty50 is around 58 which signifies that it is in a median range.
Outlook for the Global Market
While 2022 began with the S&P 500 at an all-time high, it had plummeted nearly 12% year-to-date by late February, delivering its first correction in two years and wiping out more than six months of gains in the process. The S&P 500 fell 3.1% in February and this was on the backdrop of the conflict but factors behind the selloff go beyond just the war such as higher inflation, impending interest rate hikes, and supply chain constraints. Many European countries were heavily dependent on Russian energy, particularly gas through several vital pipelines and if the conflict escalates then harsh sanctions placed on Russia would make it very difficult for these countries to be able to import gas and with the rising oil and commodity prices, it would have a detrimental effect on the economies in the Eurozone. In the annual government work report delivered to China’s National People’s Congress indicates heavy government spending and lending, as its leaders seek to project confidence in the face of global uncertainty over the pandemic and war in Ukraine and it has set a target of 5.5% growth for this year.
Outlook for Gold
In the month of Feb, the Gold market turned positive and produced more than 10% return, as we had indicated in our previous outlook mainly due to the escalating geopolitical conflicts as well as the underlying issues such as high inflation and supply chain concerns which caused global markets to dip. The industrial demand for gold and high volatility is expected to increase the demand for gold as many investors are looking to hedge their risks and hence the outlook for gold remains positive for the near term.
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What should Investors do?
Well this is a tricky question more than ever, currently The Indian market is experiencing a massive dip mainly due to the Indian rupee continuing to depreciate further due to panic selling by investors as the trade deficit increases from $ 17b to $ 21b due to the geopolitical issue.
As the oil and commodity price surges, it is expected to have ripple effects throughout India’s consumption economy. But the outlook remains positive in the long term even if we witness further consolidation in the days to come,
After a continuous losing streak, the markets recovered yesterday and the day before closing on a positive note, the recovery can be attributed to the softening stand taken by the conflicting countries, however since uncertainly is still at large, wait and watch is the strategy to be adopted for now.
We would recommend the investors to stay positive and continue your systematic investments, in case you are running on STPs you may add more weight-age when the markets are in correction mode,
Also do keep an eye on the FOMC meet in March which would likely set the pace for the market behavior for the rest of the year and this might also provide a buying opportunity for investors as some good value companies might be available at discount.
For our Platinum plan subscribers we may push out rebalances if necessary based on market movements and our view.
Also read : All about investing in Infrastructure Investment Trusts (InvIT’s).
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