A new milestone of 18K and the subsequent fall
The markets in the month of October reached a new life time high of 18K in first couple of weeks and experienced high volatility in the 2nd half of the month. The run to 18K wasn’t purely driven by only a certain class of investors. FIIs were buyers in the month of September but were sellers in the month of Oct’21 especially with big volumes in 2nd half and DII compensated for it partly as they were net buyers. The retail category wasn’t too far behind and this unionized confidence in India, coupled with the timely softening of the CPI inflation in line with RBI’s forecasts steered the swift rally in benchmark indices. In the second half of the month markets fell in tandem to other Asian markets and optimism on Indian bourses also dampened due to international brokerages cautioning the stretched valuations of Indian equities citing unfavourable risk-reward ratios. The Indian market moved around 5% in October and Sensex touched 62k and nifty also touched 18.5k mark and then closed flat for the month due to heightened volatility.
Looking at the sectorial performance for the month of Oct, almost all the sectors performed positively along with PSU bank rally. There were few sectors which had stellar performances such as banking, Media and Auto and there were a few sectors which was a laggards such as Pharma, FMCG and IT. Banks saw their PAT increase on the back of higher interest incomes and improvement in asset quality, which was marginally offset by interest reversals, increased slippages and declining margins. Going forward, the banking sector is expected to perform well in the medium to long term. Our outlook for the market remains sideways to mildly positive because of the strong support from DII and continued accommodative stance by RBI. The sectors which can do well this month include Banking, IT and metals.
Important events & Updates
Few important events of the last month and upcoming are as below:
- The biggest and the most hyped Indian unicorn IPO ‘Paytm’ is open for subscription this week and there is a solid pipeline of many other IPOs in near future.
- On the FOMC meet on Nov 3, 2021, fed confirmed its decision to maintain its accommodative stance since summer’s rise in COVID19 cases has slowed recovery in some sectors and the inflation seems to be transitory.
- Given a spate of major economic data releases and the current earnings season, the volatility experienced recently is expected to continue into the following week(s).
- India Vaccination program – India’s biggest vaccination drive update as on date, number of Covid-19 vaccine doses has crossed 100 Cr and about 24.5% of the population is fully vaccinated.
Outlook for the Indian Market
As we had indicated in our last month’s outlook, the markets experienced some volatility towards the end of the month since the valuations of numerous companies are bulging while fundamentals trail behind and FIIs and DIIs are starting to trim some of their holdings to book profits but even with the fears of high valuations, the Indian economies growth story remains solid and Indian economy is able to navigate the pandemic relatively smoothly and the pandemic has resulted in several lasting structural changes, the most notable of which being the fast expansion in the Information technology industry. The outlook for this month on fundamental & technicals are explained.
Fundamental outlook: Even though markets have been experiencing high volatility, the outlook still remains slightly positive but the market may also experience sideways movement, minor pullbacks with volatility since from now to next few months there are many IPOs lined up which may impact the liquidity in secondary market. This coupled with the mopping up of surplus liquidity by RBI through the VRR (voluntary retention scheme) have impacted the market sentiment. The market outlook broadly still remains positive for the rest of the year. The market may still see some correction if there is any change in macroeconomic factors.
Technical outlook: Nifty reached new life time high of 18.5K last month and it might test and cross it for the end of the year but the market has been experiencing high volatility this past month and this is expected to continue this earnings season. Looking at the technicals there is an immediate resistance at 18200 and major resistance around 18700 levels for the month of Nov. There is immediate support at 17300 levels and major support at 16800 levels. The RSI for Nifty50 is around 80 which signify that it is in the overbought zone.
Outlook for the Global Market
All major US equity indices closed higher, while most APAC markets were lower and Europe was mixed but the outlook for the rest of the year remains positive. US equity prices have rebounded to a record high and The US market outperformed the rest of the global markets last month and the corporate earnings season in the US dominated October amid solid profit results even with global supply chain concerns. About half of the S&P 500 companies have reported quarterly results and more than 80% of them beat earnings estimates. Eurozone continues its solid recovery from last year’s deep recession. The key driver of the recovery has been private consumption and going forward Eurozone’s economic performance will largely hinge on the development of supply chain shortages and inflation. China’s economy hit its slowest pace of growth in a year in the third quarter, hurt by power shortages and wobbles in the property sector and hence many banks have cut china’s 2021 GDP to around 8%.
Outlook for Gold
Gold price rose more than 3% last month because of the festive season in India. In the month of October gold remained around the 48000-47000 range. Gold demand in India is bouncing back to pre-COVID levels and going forward the outlook looks bullish. The Gold has been underperforming since mid 2020 due to the strong uptrend in Equity market but with the upcoming festive and wedding season and higher volatility in the equity market, there is more enthusiasm towards gold demand.
What should Investors do?
The Indian market is experiencing some volatility after reaching a new milestone of 18.5K and this is expected to continue for the rest of the month as the companies publish their quarterly reports and the concerns of high valuation still lingers in the minds of investors and hence some of them have started to trim down their investments in come companies but the overall growth story of India Inc. still remains positive hence we would recommend investors to maintaining proper allocation based on your risk profile as recommended by advisors. We would also recommend investors to avoid aggressive investments for the time being. There is IPO buzz and many big and much awaited IPOs are lined up in next two months which will provide Investor with Investment opportunity and listing gains opportunity.
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.