Bears take bulls by horns; markets slump 3.50%

Bears took bulls by the horns in the week gone by with frontline gauges shaving off three and a half percentage points amid bets on the US Federal Reserve's faster rate hikes in 2022. Markets made a cautious start as traders got anxious with the former World Bank Chief Economist Kaushik Basu’s statement that India's overall macroeconomic situation is in a recovery mode but the growth is concentrated at the top end, which is a worrying trend. Some pessimism also came as Engineering Export Promotion Council of India has expressed concern that the spread of Omicron, the new variant of coronavirus, may once again disrupt the global supply chain, which could lead to a slowdown in trading activities. Afterwards, markets started moving southward and never seen in recovering throughout the week with bears dominating bulls completely as traders turned anxious with Crisil Ratings’ report stating that securitisation volume growth slowed to around 8 percent on year to Rs 29,000 crore in the quarter ended December 31, 2021 (Q3FY22), on higher risk aversion amid the third wave of COVID-19. Some cautiousness also came in as the SBI Business Activity Index declined to 101 as on January 17 from 109 in the week ended January 10. The latest reading, even as the country is in the midst of the third wave of the pandemic, is the lowest since November 15. Sentiments remained down-beat with ratings agency ICRA’s report that states are shelling out more for debt funds, with the weighted average cost for their debt auctions hardening by 9 basis points (bps) to touch 7.24 per cent, the highest level so far this fiscal, during the auctions on January 18, 2022. Selling intensified after Icra’s statement that while there is some evidence of the economic recovery becoming broad-based in the third quarter of fiscal 2022, it is yet to attain the durability being sought by the Monetary Policy Committee (MPC) as a precursor to policy transmission. The agency expects the real GDP to expand 6-6.5 per cent year-on-year in the third quarter of FY2022 (+8.4 per cent in Q2 FY2022. Meanwhile, government data showed that retail inflation for farm and rural workers rose to 4.78 percent and 5.03 percent respectively in December 2021, mainly due to higher price of certain food items.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex slipped 2185.85 points or 3.57% to 59,037.18 during the week ended January 21, 2022. The BSE Midcap index losses 1133.57 points or 4.35% to 24,951.67, while Smallcap index slipped 984.07 points or 3.18% to 29,967.21. On the sectoral front, S&P BSE Information Technology was down by 2,517.45 points or 6.55% to 35,924.10, S&P BSE TECK was down by 1,087.92 points or 6.42% to 15,860.99, S&P BSE Healthcare was down by 1,339.54 points or 5.20% to 24,427.72, S&P BSE Consumer Durables was down by 1,936.41 points or 4.22% to 43,897.41 and S&P BSE Capital Goods was down by 1,141.35 points or 3.70% to 29,733.81 were the top losers on the BSE sectoral front, while S&P BSE Power was up by 102.01 points or 2.65% to 3,949.00 were the only gainers on the BSE sectoral front.

NSE movement for the week

The Nifty slipped 638.60 or 3.50% to 17,617.15. On the National Stock Exchange (NSE), Nifty Mid Cap 100 decreased 1426.05 points or 4.46% to 30,563.60, Nifty Next 50 lost 1369.55 points or 3.14% to 42,182.20, Bank Nifty was down by 796.10 points or 2.07% to 37,574.30 and Nifty IT was down by 2772.30 points or 7.14% to 36,054.55.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net sellers in equity segment in the week, with gross purchases of Rs 33,196.95 crore and gross sales of Rs 43,844.86 crore, leading to a net outflow of Rs 10,647.91 crore. They also stood as net buyers in the debt segment with gross purchases of Rs 4,403.05 crore against gross sales of Rs 1,962.49 crore, resulting in a net inflow of Rs 2,440.56 crore. In hybrid segment, FIIs stood as net sellers, with gross purchases of Rs 76.30 crore and gross sales of Rs 103.96 crore, leading to a net outflow of Rs 27.66 crore.

Industry and Economy

Indicating that Indian economy remains on track to regain its position as the world's fastest-growing major economy, the National Statistical Office (NSO) in its first advance estimate has stated that the gross domestic product (GDP) to grow at 9.2 per cent in April 2021 to March 2022 fiscal (FY 2021-22) amid concerns over the impact of a resurgent virus on the fragile recovery. The economy had contracted by 7.3 per cent in the previous financial year. With 9.2 per cent growth in 2021-22 fiscal, the economy will surpass the pre-COVID level in actual terms, mainly on account of improved performance by farm, mining and manufacturing sectors.

Outlook for the coming week

In the passing week, key gauges ended in deep red, with Nifty and Sensex tumbling by around 4% each, amid bets on the US Federal Reserve's faster rate hikes in 2022. US Federal Open Market Committee will detail its next policy statement on January 26. In December, the rate-setting panel had signalled three rate hikes of 25 basis points each in 2022, as the US central bank seeks to tackle surging inflation in the world’s largest economy.

The coming week is expected to be a volatile one for local equity markets on account of F&O expiry, which is scheduled to take place on January 27, 2022.

Investors for the coming week would be eyeing results from majors ICICI Bank, Yes Bank, Axis Bank, Burger King India, Cera Sanitaryware, HDFC Asset Management Company, SBI Cards and Payment Services, Shemaroo Entertainment, Cipla, ICRA, Macrotech Developers, Maruti Suzuki India, Raymond, Bhel, Laurus Labs, Deepak Fertilisers, Dr.Reddy's Laboratories, Kotak Mahindra Bank, Larsen & Toubro etc among others.

With no any major economic announcement during the week, traders would be looking forward to the Deposit Growth and Bank Loan Growth which is schedule to be release on January 28. The value of loans in India increased 9.20 percent in December of 2021 over the same month in the previous year. On the same day, Foreign Exchange Reserves is also going to release.

On the global front from the US, traders will first be eyeing Chicago Fed National Activity Index, Markit Composite PMI Flash on January 24 followed by Redbook on January 25, Fed Interest Rate Decision on January 26, GDP Growth Rate, Jobless Claims on January 27 and finally Michigan Consumer Sentiment Final and Baker Hughes Total Rig Count on January 28.

Top Gainers

  • Hero MotoCorp up by 6.03% was the top gainer on Nifty for the week - Hero MotoCorp, has commenced online bookings of its latest motorcycle XPulse 200 4 Valve, further strengthening its digital initiatives for enhanced and contactless customer experience. The company has started accepting bookings for the second batch after the first lot was completely sold out. Also, the company and investment firm Engine No. 1, along with another investor, are planning to invest in electric vehicle battery swapping ecosystems provider Gogoro Inc and Poema Global Holdings, a special purpose acquisition company.
  • Power Grid Corporation up by 3.41% was another top gainer on Nifty for the week - Power Grid has joined hands with pan-African infrastructure investment platform ‘Africa50’ to continue the development of Kenya transmission project on a PPP basis. The project entails the development, financing, construction, and operation of the 400kV Lessos - Loosuk and 220kV Kisumu - Musaga transmission lines under a PPP framework. The company will provide technical and operational know-how to the project, while Africa50 will bring its project development and finance expertise.

Top Losers

  • HCL Technologies down by 12.46% was the top loser of the week on Nifty - HCL Technologies traded under pressure on reporting 13.30% fall in its consolidated net profit at Rs 3,448 crore for third quarter ended December 31, 2021 as compared to Rs 3,977 crore for the same quarter in the previous year. However, total income of the company increased by 15.88% at Rs 22,586 crore for Q3FY22 as compared Rs 19,491 crore for Q3FY21. On standalone basis, the company has reported a fall of 22.37% in its net profit at Rs 2,637 crore for Q3FY22 as compared to Rs 3,397 crore for Q3FY21.
  • Bajaj Finserv down by 10.37% was another top loser of the week on Nifty - Bajaj Finserv witnessed selling pressure on reporting 2.65% fall in its consolidated net profit at Rs 1255.79 crore for third quarter ended December 31, 2021 as compared to Rs 1289.96 crore for the same quarter in the previous year. However, total income of the company increased by 10.39% at Rs 17619.64 crore for Q3FY22 as compared Rs 15960.72 crore for Q3FY21. On standalone basis, the company has reported 20- fold jump in its net profit at Rs 168.50 crore for Q3FY22 as compared to Rs 8.40 crore for Q3FY21.

Technical viewpoints

During the week, CNX Nifty touched the highest level of 18,350.95 on January 18 and lowest level of 17,485.85 on January 21. On the last trading day, the Nifty closed at 17,617.15 with weekly loss of 638.60 points or 3.50 percent. For the coming week, 17,285.02 followed by 16,952.88 are likely to be good support levels for the Nifty, while the index may face resistance at 18,150.12 and further at 18,683.08 levels.

US Market

The U.S. markets ended lower during the passing week as markets continued to struggle this year in a rising interest rate environment. Stocks moved lower as government bond yields remained elevated, part of a market repricing as the Federal Reserve gets set to tighten monetary policy. The central bank meets next week. Investors worry that higher rates and tighter financial conditions will lead to valuation compression, in effect undoing much of the Fed’s decade-long largesse. The bond market is continuing to price in a more aggressive policy tightening by Federal Reserve based on still-high inflation and the Fed’s more hawkish guidance. The U.S. markets were closed Monday on account of the Martin Luther King Jr. holiday.

Further, cautiousness also prevailed in the markets as the spread of the omicron Covid-19 variant has raised questions over the state of the global economic recovery ever since news of its discovery broke. Some countries and regions reinstated lockdowns and other social distancing measures to curb the outbreak. On the economic data front, unemployment data signaled the surge in omicron could be hurting the recovery. Jobless claims for the week ended January 15 totaled 286,000 for the week, their highest level since October. The read was well above street's estimate of 225,000 and a substantial gain from the previous week’s 231,000. The surge in jobless claims and drop in existing home sales has lead to some easing 10-year bond yields which could reflect some reduction in the degree the Fed could tighten - certainly dampens speculation of a 50 basis point rate hike in March.

New residential construction in the U.S. unexpectedly saw a notable increase in the month of December, according to a report released by the Commerce Department. The report said housing starts jumped 1.4 percent to an annual rate of 1.702 million in December from a revised rate of 1.678 million in November. Street had expected housing starts to drop to a rate of 1.650 million from the 1.679 million originally reported for the previous month. The Commerce Department also said building permits spiked by 9.1 percent to an annual rate of 1.873 million from a revised rate of 1.717 million in November. Building permits, an indicator of future housing demand, were expected to drop to a rate of 1.701 million from the 1.712 million originally reported for the previous month.

European Market

European markets ended passing week on a lower note.  The start of the week was in green, as German economic confidence improved more-than-expected to a six-month high in January as the economy is expected to pick up over the coming months. The survey results from the ZEW - Leibniz Centre for European Economic Research showed that the ZEW Indicator of Economic Sentiment rose to 51.7 in January from 29.9 in the previous month. Besides, the euro area current account surplus increased in November. The European Central Bank said that the current account surplus rose to EUR 24 billion in November from EUR 19 billion in the previous month. During twelve months to November, the current account surplus totaled EUR 320 billion, which was equivalent to 2.7 percent of GDP. In the same period last year, the surplus totaled EUR 195 billion or 1.7 percent of GDP.

Markets cuts gains towards end of the week, after UK consumer confidence weakened in January amid concerns over higher inflation and interest rate hikes. The survey results from GfK showed that the consumer confidence index fell to -19 in January from -15 in the previous month. All five measures of the index were down in comparison to the December 17th data. The index measuring the past personal financial situation dropped slightly to -6 in January from -5. The outlook for personal financial situation declined 3 points to -2. Further, Italy's construction output increased at a softer pace in November. The data from the statistical office ISTAT showed that the construction output increased a seasonally adjusted 1.0 percent month-on-month in November, after a 1.3 percent rise in October. On a yearly basis, the construction output increased a working day adjusted 13.2 percent in November, following a 10.7 percent gain in the previous month.

On the inflation front, Italy's consumer price inflation increased in December, as initially estimated. The final data from the statistical office Istat showed that consumer price inflation rose to 3.9 percent in December from 3.7 percent in November, as estimated. On a month-on-month basis, consumer prices rose 0.4 percent, as initially estimated. The EU measure of harmonized index, or HICP, increased 4.2 percent in December, following a 3.9 percent rise a month ago, as estimated. Besides, Eurozone inflation accelerated, as estimated, to a record high in December. The final data from Eurostat showed that the consumer price index rose 5.0 percent year-on-year after a 4.9 percent increase in November. This was the highest inflation on record and matched the preliminary estimate released on January 7. Core inflation, which excludes prices of energy, food, alcohol & tobacco, held steady at 2.6 percent in December, as initially estimated.

Asian market

Asian markets ended mixed during the passing week, as traders remain worried and cautious amid the rapid spread of the coronavirus Omicron variant in most countries and the likely economic impact of the related fresh curbs. Besides, ahead of next week's Federal Reserve policy meeting, U.S. President Joe Biden backed the central bank's plans to scale back stimulus, saying taming inflation is a critical job for the Federal Reserve.

Japanese Nikkei fell by over two percent, as investors also reacted to mixed inflation data and the downbeat signals from the Bank of Japan monetary policy meeting minutes. Traders also took a note of the Ministry of Finance’s statement that Japan posted a merchandise trade deficit of 582.2 billion yen in December. That beat forecasts for a shortfall of 784.1 billion yen following the downwardly revised deficit of 955.6 billion yen in November (originally -954.8 billion yen). Meanwhile, the Bank of Japan in its most recent meeting has trimmed its pandemic related funding measures, ending the additional purchases of CP and corporate bonds at the end of March 2022 as scheduled, and also maintained the interest rate at -0.1% on current accounts that financial institutions maintain at the central bank.

However, Chinese Shanghai edged marginally higher, taking support from National Bureau of Statistics indicating that China’s economy grew by 8.1% in 2021 as industrial production rose steadily through the end of the year and offset a drop off in retail sales. Beside, the bureau said Industrial production rose by 4.3% in December from a year ago, also beating Reuters’ forecast of 3.6% growth. Notably, auto production grew for the first time since April, up by 3.4% year-on-year in December. However, retail sales missed expectations and grew by 1.7% in December from a year ago.