The Noise Does Not Matter!
The bulls started the year 2022 on a buoyant note given the fact that in a span of just three days the Nifty gained 3 per cent and it looked like there was no stopping it. During this process, the Nifty reclaimed its important moving averages of 50 DMA and 100 DMA. An interesting point to note is that the index’s recent movement has been driven by gains in Bank Nifty. So far in the week, the leadership index has rallied by 5 per cent, outperforming the benchmark index. Bank Nifty managed to move above its 20 DMA, 50 DMA and 100 DMA and interestingly, the index has moved above the December 2021 highs.
So, what led to this mammoth move in Bank Nifty, which was seen underperforming otherwise? It was on account of the hope among market participants that the Reserve Bank of India (RBI) may delay an expected increase in the interest rate next month owing to the spread of the Omicron variant of the corona virus. We believe too that following the rising caseload and growing restrictions, it is increasingly unlikely that the RBI will embark on policy normalisation unless inflation springs a negative surprise. Furthermore, the recent output data of eight core industries which grew at the slowest pace in eight months in November, indicating slowing momentum in the economy, adds up to the equation that rate hike is not on the cards at this moment.
However, investor optimism was soon derailed and to everyone’s surprise it was not the virus which derailed the buoyancy. In fact, the markets seem to be taking the current virus in stride, banking on the fact that the scare is not going to baffle the supply chains as badly as the Delta variant or the original strain did. But, put the blame on the latest FOMC meeting minutes and soaring treasury yields that derailed the cheerfulness. US Federal Reserve policymakers widely agreed that it might be warranted to increase interest rates sooner than they had earlier anticipated against the backdrop of rising inflation.
Shifting our focus back to the domestic markets, FIIs were the talk of the town for the last couple of months as they sold a whopping sum of Rs over 1 lakh crore in the last three months i.e. October-December. However, it’s just been three trading sessions into the year 2022, but the inflows from FIIs have been decent as they turned out to be the net buyers to the tune of Rs 2,513.33 crore while DIIs continue their shopping spree, being net buyers to the tune of Rs 2,608.03 crore. Going ahead, earnings from some of the biggest information technology companies will take centre-stage on D Street, giving investors a chance to re-evaluate the sector’s health.
The top three biggies of the IT space are set to report next week. Furthermore, this is probably the first time in the history that these top three biggies, namely, TCS, Infosys and Wipro, will report their earnings on the very same day. The key monitorables would be management commentary on CY22 IT budget, pricing environment, deals pipelines and deal closure momentum, steps taken to manage supply side challenges, etc.
In the near term, the direction of the market movement will be dictated by global trends and the earning season. Despite lingering fears surrounding surging Omicron cases and potentially faster pace of shrinking the US Federal Reserve’s massive balance-sheet and raising rates, the domestic market is expected to maintain its resilience supported by a healthy long-term growth forecast for the domestic economy. Overall, in the near term there would be a lot of noise and we will end this by quoting a famous saying: “In a world full of noise, discipline is an investor’s greatest asset.” Hence, investors need to be focused and disciplined.
