The tussle between bears and bulls continues:
The markets in the month of April were very volatile with a negative bias. The markets started the new financial year on a positive note and crossed 18K in the first week but failed to persist over the week. The rising inflation, supply chain pressures, and hawkishness underlying the country’s monetary policy committee measures even though the stance is still accommodative cause the markets to consolidate in the second half of the month. The FII were sellers in the month of April and offloaded more than 40.65k Crs worth of equity. The Indian market closed the month in negative territory, with a downtrend of ~2.1%. Nifty closed out at 17100 levels and Sensex closed out at 57000 levels.
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Looking at the sectorial performance for the month of April, almost all the sectors consolidated. Amidst them, there was one sector that gave positive returns, that was the energy sector, mainly due to increasing energy prices. The ongoing conflict between Ukraine and Russia is having unintended consequences on oil and commodity prices and the supply chain problems that have been exacerbated by this conflict have caused the rise in raw material prices which have impacted the border sectors. The sectors which can do well this month include Metals, commodities, and Energy.
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Important events & Updates
A few important events of the last month and upcoming are as below:
- The RBI governor raised the repo rate to 4.4% and cash reserve ratio to 4.5%, up 40 bps and 50 bps respectively in an unscheduled meeting on 4 th May.
- The gross GST collection in April 2022 rose to Rs. 1.68 lakh crore ($21.91 billion) and this collection has been the highest since the implementation of the GST.
- The initial public offering of the country’s largest life insurance company Life Insurance Corporation of India is underway and as of 6 th may, it has been subscribed 1.20 times, receiving bids for 19.37 crore equity shares against an offer size of 16.2 crore equity shares.
- India’s inflation based on the Wholesale Price Index (WPI) rose to a four-month high of 14.55% in March from 13.11% in February, according to data released by the commerce ministry on April 18.
- Nikkei Services Purchasing Managers Index (PMI) was 57.9 compared to an estimated 54.
- India Vaccination program – India’s biggest vaccination drive update as on date, the number of Covid-19 vaccine doses has crossed 190Cr and about 62.6% of the population is fully vaccinated. This is becoming more important as there has been a resurgence of the virus in China.
Outlook for the Indian Market
The inflation pressure which was exacerbated by rising commodity and oil prices are having far-reaching consequences and this was first witnessed in the WPI side which would gradually flow through the system due to which the CPI for April is expected to be eye-watering 7.4% and hence the RBI raised the repo rate by 40 bps to curb inflation from running rampant which has caused the 10-year government bond yield to surge almost 30 bps, its biggest jump in five years and there is the expectation of more rate hikes in June meet as RBI indicates that tackling inflation risks is now front and center. The outlook for this month on fundamental & technicals are explained.
Fundamental outlook: The month of May is expected to remain volatile and may see more consolidation as macro factors and inflation are driving the markets. Earnings season is underway and many companies especially tech are facing inflationary pressure on their margins even though most of the positives on the earnings front are completely priced in the current valuations. FII has been the net seller, the capital outflow will keep financial markets on the edge with higher liquidity pressures for Indian corporates and Inflationary pressures accentuated by worsening current account deficit will be a major concern in the near term.
Technical outlook: The broader Indian market was the worst performing among the global markets in the month of April. Apart from the global headwinds and the fall in index heavyweights, another observation of why Indian markets are failing to hold up is that lately, the FII sell-off is not being completely absorbed by the DIIs, who were pumping funds on the back of the high retail SIP inflows. So far in April, DIIs have absorbed less than 60% of the FII sell-off this might be a sign of retail investors may feel less motivated to trade due to the high volatility and consolidation of the market along with rising inflation reducing investor’s disposable income. Looking at the technicals there is immediate resistance at 17600 and major resistance around 18200 levels for the month of May. There is immediate support at 16400 levels and major support at 15900 levels. The RSI for Nifty50 is around 62 which signifies that it is in a slightly overbought zone.
Outlook for the Global Market
As US real GDP fell decreased at an annual rate of 1.4% in the first quarter of 2022, concern about the risk of recession in the United States has increased significantly but this fall was entirely due to a sudden decline in inventories as well as a sudden decline in exports even though underlying demand was stronger than in the previous quarter and the number of initial claims for unemployment insurance last week was close to the lowest in 50 years which means that the risk of recession is unwarranted but the biggest risks for the economy is elevated commodity prices, high inflation and more importantly the tightening of monetary policy. Inflation in the Eurozone continued to accelerate in April as the war in Ukraine continues with no end in sight. Prices were up 7.5% from a year earlier and up 0.6% from the previous month. When volatile food and energy prices are excluded, core prices were up 3.5% from a year earlier and up 1.1% from the previous month, and as most of the inflation is mainly due to a rise in oil and gas prices along with the possibility of an embargo from Russian oil, the European central bank is reluctant to shift gears and tighten monetary policy as it fears receding growth. The Chinese government has been grappling with the resurgence of the covid infections and policies adopted by the authorities since mid-March to contain the spread of the Omicron strain of Covid-19 have led to an extended lockdown in the important commercial hub of Shanghai, and a rise in public health and mobility restrictions across China and these lockdowns are beginning to have an impact on the world’s global supply chain, as factories that make iPhones, electric cars and semiconductors have had to stop operations. China’s target of 5.5% economic growth for 2022 is now unrealistic because so much of daily economic life has ground to a halt due to lockdowns.
Outlook for Gold
In the month of April, the Gold market performed negatively with a nearly 1.3% drop but the demand for gold as a hedge against rising inflation still remains strong hence the outlook for gold remains strong for the rest of the year.
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What should Investors do?
The Indian market for the near term remains highly sensitive to macro factors and remains highly volatile. Rising inflation, supply chain, rising commodity, oil & gas, and availability of containers are adversely affecting the economy and along with this central banks around the world are facing headwinds going forward, as the Central banks start their rate hikes to combat inflation, which has an impact on all markets hence we would recommend the investors to not go for any aggressive investments and keep an eye out for corporate earnings, investing in companies with solid balance sheet instead of growth companies and averaging the cost of fundamentally good companies is a prudent strategy.
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
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