Markets Stop Frowning and Start Smiling
Just as the saying goes, ‘All’s well that ends well’, that’s what was being displayed on D-Street in the month of March. Nifty reclaimed the 17,400 mark and ended the month of March with a gain of nearly 4 per cent. However, at the start of the month, the street was fearful amidst the war scenario and not many would have thought that Nifty would return to the 17,400 mark and zoom over 4 per cent in March. There was a buzz that Nifty would soon hit the levels of 15,000-14,000 on the downside given the triple whammy of geopolitical risk, surging inflation and boiling crude oil price.
This reminds us of a great quote from Nathan Mayer Rothschild who uttered these words during the Napoleonic wars: “Buy to the sound of cannons, sell to the sound of trumpets.” This once again proves that the stock market is a forward-looking mechanism since it always prices in an event and the event always happens later. On this note we would like to highlight the fact that as per a news report another round of peace talks are going to take place today between Russian and Ukraine and we will keep our fingers crossed, hoping that finally there would be some signs of ceasefire. The war has extended over a one month period and enough is enough.
Meanwhile, some promising signs have emerged for the Indian equity markets in the last couple of days. Oil, which has been a big headache over the last one month or so, has retreated and at the time of writing it has slipped below the USD 106 mark and is inching closer to its important support level of USD 102-103 mark, which is defined by the upward rising trend-line. If this support is breached on the downside, it could go all the way down to the level of USD 95 in the short term. Meanwhile, the question in everyone’s mind is about what has triggered the oil price to slip downward?
The reason is that the US administration is planning to release 1 million barrels per day from its reserves over the next several months and if reports are to be believed, it is going to be the largest release by the US from its strategic petroleum reserve. Furthermore, the US Dollar index, which was once moving towards the level of 100, is now nearing the low of March 17, 2022. There is something to cheer about on the fund flow front as well since as on March 30, 2022 there was a perfect cocktail with both FIIs and DIIs emerging as net buyers. FIIs net bought to the tune of Rs 1,357.46 crore and DIIs net bought to the tune of Rs 1,216 crore.
With the FIIs buying over the last couple of days, this is clearly an indication of buoyancy from their side but it is too early to say that that trend has reversed. Going forward, all eyes will be on the March automobile sales data which will be released on Friday. As a result, the automotive pack would be in focus. Digging deeper, the Nifty Auto index in the month of March has dropped around 2.5 per cent which in fact is one of the biggest underperformers among sectoral indices in March. Meanwhile, on YTD basis, the index is down by nearly 3.5 per cent.
The underperformance of the automotive sector can be blamed on rising industrial metals prices that are hurting margins despite the recent price hike. Higher crude oil prices are also weighing over demand. Meanwhile, owing to chip shortage and ongoing supply chain constraints, we believe the automobile sales number would be a mixed bag for March as well. Technically, the level of 10,300 is crucial on the Nifty Auto index. Technically, the market structure is strong as Nifty is trading above its 20,50, 100 and 200 DMA and is trading above its 61.8 per cent retracement level of the downswing from January high to March low. As long as the index maintains its head above 200 DMA, which is placed at the 17,069 level, all seems to be well for the markets.
