Virus Comes to Roost Again
Volatility was the hallmark on D-Street on Friday when India VIX jumped over 20 per cent and in the very next trading session it touched a high of 23.82, which was almost a six-month high. What led to this spike in India VIX? There were a host of factors which included nervousness over the US Federal Reserve rate hike, fear that the Government of India may backpedal on the reform agenda after its decision to repeal farm laws, sharp selling by FIIs due to overvaluation concerns and above all, market participants’ belief that the new variant of the corona virus has the potential to resist vaccines which could put countries’ healthy systems under stress again, lead to fresh lockdowns and threaten global economic recovery.
Just as it touched a high and the volatility led market participants to pull their hair out to analyse whether this high volatility would ever subsidise or would it spike or inch towards the 30+ levels, the bulls came to the rescue again when India’s GST collections hit the mark of Rs 1.31 trillion in November – the second-highest in a month since the country introduced the GST system in 2017. Furthermore, the Q2FY22 GDP came in at 8.4 per cent, which was much better than what was widely expected with the RBI forecast at 7.9 per cent, while most economists had predicted 8-8.1 per cent. As a result, the bulls’ picked themselves and regained the lost smile.
However, going forward, the zone of 17,400-17,600 is a key resistance area as in recent times not once but twice it has turned back from this zone. It would be crucial to watch whether the index is able to surpass this hurdle or once again or the same old story repeats itself and it reverses its gains. The performance of Nifty in November 2021 was quite dismal as the index dropped 3.90 per cent from its October closing, which is also the highest monthly fall since March 2020. The primary reason for such an underperformance was the huge sell-off by the FII camp which continues to be net sellers, selling to the tune of Rs 39,901 crore worth of shares in November on top of more than Rs 25,000 crore of offloading in October.
So, what should be the trend of the Indian benchmark indices in December, which has started on an impressive note? Historical trend indicates that December is always a merry one for Nifty. On an average the index has gained about 3.3 per cent with the highest performance delivered in the year 2003. And, interestingly, in only one instance in the last five years, the index has delivered flat to negative returns in December. Furthermore, the index has not corrected more than 10 per cent and in the current scenario the index has registered near about 10 per cent correction from a lifetime high of 18,604.45, which indicates that the level of 16,740 could be of strong support.
As long the level of 16,740 is protected on the downside, we could see more of time correction as the index has already witnessed a price correction of nearly 10 per cent from its all-time high. And, during this time correction phase, the broad range for the Nifty could be in the range of 16,800-17,800. Going ahead, all eyes will be on the RBI monetary policy meet which is scheduled on December 8 to see whether the RBI hikes the rates or not. This would probably depend on how the new variant pans out and if the transmission gets rampant. We may see the RBI maintaining a status quo; if this isn’t the case then the rate could be hiked.
