This financial year was full of surprises and was marked by a sudden shift from extreme pessimism to extreme optimism. Investors were baffled by Nifty50’s swing from the low of 7,511 in March 2020 to an all-time high of 15,431 in less than a year.
This swift recovery, which was a phenomenon for global markets as well, can be attributed to the dedicated collaborative efforts by a host of moving variables. From trillions of dollars as stimulus from governments across the globe to slashing of interest rates by central banks, these factors synergistically bolstered ground-level demand and led to gradual economic recovery. Not to forget the timely initiatives by the Indian government through production-linked incentives (PLI) to kick-start domestic production, which fuelled confidence.
An added advantage was the faith imposed by the FPIs, which have been ardent believers in the India growth story since May 2020 and have been continuously adding inflows to our markets. This combined effort led to the sharp rebound in the markets globally as well as domestically.
This year has indeed taught us a few lessons, which were mainly about the fact that “price is king” and equity markets always behave in its own mysterious way. When investors thought we were in a deep bear market back in March 2020, the indices made a bottom and shot up to new highs. Also, when market participants assumed that nothing can go wrong, equity markets always managed to spring a surprise.
Hence, it would be logical to be aware of the possible downside risks, which can come our way in the new financial year. There could be possibility that it may take longer than expected to
return to normalcy given the fears of a new strain and a second wave of Covid breakout in the country. Also, if money supply tightens in the US with an increase in interest rates to curb inflationary pressures, the money might get routed towards the US, instead of India.
Lastly, post the Covid-19 recovery phase, geopolitical risks in the form of prolonged US-China tensions can come back into focus. But investors must continue to remain invested, even though FY22 can be a volatile year with Covid’s low base having an impact on the first half of the year.
Event of the Week
The USD-INR pair showed strength this week, especially after taking support at around $72.27/INR level. The dollar hit a fresh one-year high this week because of the massive infrastructure stimulus being announced by the Biden Administration and the accelerated vaccination drive against Covid-19. The optimism led to a jump in bond yields, which also pushed the dollar and the USD-INR pair higher. Broadly speaking, the rupee was well supported in the recent months by huge inflows of foreign investment into Indian equities and a further rise in yields can shift the inflows towards the US.
A further depreciation of the rupee can also accelerate a vicious circle of outflows, which will be a negative for equities.
Technical Outlook
Nifty50 index closed positive for the week. However, the market lacked decisiveness in its direction, as after bouncing from its channel support , Nifty was contained within Tuesday’s trading range. This week’s candle is also within the previous week’s range. Our market is actually witnessing a volatility squeeze, while the trend in other emerging indices hinted at a consolidation breakout on the upside.
ET CONTRIBUTORSWe would advise traders to maintain a mildly bullish outlook. Nifty, immediate support and resistance are now placed at 14,260 and 14,880 respectively.
Expectation for the Week
The key event to look forward to in the coming week would be the RBI’s MPC meeting. It is likely that RBI would continue with its accommodative stance given the uncertainty around the intensity of a second wave of Covid-19. The governor’s comments on the overall economic scenario will influence the bourses. This will be followed by the start of March quarter earnings season.
Fiscal year 2020-21 taught us a great lesson, which is to stay invested in equities through the thick and thins of the market. We advise investors to keep a 5-7 years’ investment horizon to beat the volatility that the coming year will bring to us.
Nifty50 closed the week at 14,867, up 2.48%.
