Bears dominate bulls as hawkish Fed roils global markets

Bears strengthened grip on Dalal Street for the second straight week with frontline gauges losing three percent each in tandem with a global selloff after the US Federal Reserve signalled policy tightening from March. A depreciating rupee and persistent foreign fund outflows further weighed on sentiment. Markets started the holiday truncated week on pessimistic note after former RBI Governor Raghuram Rajan said the Indian economy has some bright spots and a number of very dark stains and the government should target its spending carefully so that there are no huge deficits. Rajan also said the government needs to do more to prevent a K-shaped recovery of the economy hit by the coronavirus pandemic. Sentiments remained down-beat with the Ministry of Statistics and Programme Implementation in its latest report has said that as many as 445 infrastructure projects, each entailing investment of Rs 150 crore or more, have been hit by cost overruns totalling more than Rs 4.4 lakh crore. On the very next day, key gauges witnessed some recovery as traders took some support from former Niti Aayog Vice Chairman Arvind Panagariya’s statement that the Indian economy has recovered 'handsomely' from the pandemic-induced disruptions, while expressing hope that the recovery will be sustained and the growth rate of 7 to 8 per cent will be restored. Traders also found some solace with the commerce ministry’s statement that exports of engineering goods rose 54 per cent to $81.8 billion during April-December 2021-22 as compared to the same period of the previous year. However, markets witnessed massive selloff thereafter as traders got anxious with the IMF in its latest update of World Economic Outlook has cut India's economic growth forecast to 9 per cent for FY22 from its earlier projection of a 9.5 per cent GDP growth, on concerns over the impact of a spread of new variant of coronavirus on business activity and mobility. The Indian economy had contracted by 7.3 per cent in the 2020-21 fiscal year. On the final day of the week, market participants remained on sidelines ahead of Union Budget 2022-23 to be presented by Union Finance and Corporate Affairs Minister Nirmala Sitharaman on February 1, 2022, in paperless form, for further cues.

BSE movement for the week

The Bombay Stock Exchange (BSE) Sensex slipped 1836.95 points or 3.11% to 57,200.23 during the week ended January 28, 2022. The BSE Midcap index losses 764.94 points or 3.07% to 24,186.73, while Smallcap index slipped 1027.03 points or 3.43% to 28,940.18. On the sectoral front, S&P BSE Consumer Durables was down by 2,999.19 points or 6.83% to 40,898.22, S&P BSE Information Technology was down by 2,100.10 points or 5.85% to 33,824.00, S&P BSE Realty was down by 202.35 points or 5.19% to 3,694.48, S&P BSE TECK was down by 765.60 points or 4.83% to 15,095.39 and S&P BSE Metal was down by 841.81 points or 4.25% to 18,985.96 were the top losers on the BSE sectoral front, while S&P BSE PSU was up by 165.64 points or 1.91% to 8,842.03 and S&P BSE BANKEX was up by 317.44 points or 0.74% to 43,257.74 were the only gainers on the BSE sectoral front.

NSE movement for the week

The Nifty slipped 515.20 or 2.92% to 17,101.95. On the National Stock Exchange (NSE), Nifty IT down by 2202.60 points or 6.11% to 33,851.95, Nifty Mid Cap 100 decreased 758.70 points or 2.48% to 29,804.90 and Nifty Next 50 was down by 1549.00 points or 3.67% to 40,633.20. On the other side, Bank Nifty was up by 115.10 points or 0.31% to 37,689.40.

FII transactions during the week

Foreign Institutional Investors (FIIs) were net sellers in equity segment in the week, with gross purchases of Rs 33,253.64 crore and gross sales of Rs 52,705.26 crore, leading to a net outflow of Rs 19,451.62 crore. They also stood as net buyers in the debt segment with gross purchases of Rs 2,881.68 crore against gross sales of Rs 1,962.43 crore, resulting in a net inflow of Rs 919.25 crore. In hybrid segment, FIIs stood as net sellers, with gross purchases of Rs 28.26 crore and gross sales of Rs 48.07 crore, leading to a net outflow of Rs 19.81 crore.

Industry and Economy

The International Monetary Fund (IMF) in its latest update of World Economic Outlook has cut India's economic growth forecast to 9 per cent for the current fiscal year ending March 31 (FY22) from its earlier projection of a 9.5 per cent GDP growth, on concerns over the impact of a spread of new variant of coronavirus on business activity and mobility. The Indian economy had contracted by 7.3 per cent in the 2020-21 fiscal year. As per the report, the agency put the forecast for the next fiscal FY23 (April 2022 to March 2023) at 7.1 per cent. According to the IMF, India's prospects for 2023 are marked up on expected improvements to credit growth and, subsequently, investment and consumption, building on better-than-anticipated performance of the financial sector.

Outlook for the coming week

In the passing week, key gauges ended in red, tracking weakness in global markets as US Federal Reserve’s signal to steadily tighten policy. Federal Reserve officials signaled that they were on track to raise interest rates in March.

The coming week will have the mega event of Union Budget which will keep the markets buzzing through the week and there will be sector specific moves based on the budget announcements, with lots of hopes hinging with Finance Minister.

The week will also mark the start of the new month and lots of economic data will be released along with the auto sales numbers which will show the real state of the auto sector. Core Sector data will also be announced for the month of December.

In other economic data, Markit Manufacturing PMI too will be released on Feb 1. IHS Markit India Manufacturing PMI was down to 55.5 in December 2021 from a tenth-month high of 57.6 in October. Markit Services PMI for the month of January will be released on Feb 3. IHS Markit India Services PMI fell to 55.5 in December of 2021 from 58.1 in November.

In the ongoing result season, few majors that are expected to unveil their earnings including Gravita India, Indusind Bank, MCX, NTPC, BPCL, Exide Industries, IOC, Sun Pharma, Tata Motors, Adani Ports, Bajaj Consumer Care, Dabur India, HDFC, Adani Power, Cadila Healthcare, Gail, Lupin, Cholamandalam Investment and Finance, Tech Mahindra, Adani Green Energy, Apollo Tyres, Radico Khaitan, Titan Company, Birla Corporation, Indigo etc among others.

On the global front from the US, traders will first be eyeing Redbook, Markit Manufacturing PMI Final, Dallas Fed Services Index on February 1, followed by Initial Jobless Claims, Markit Services PMI Final on February 3 and finally Baker Hughes Oil Rig Count on February 4.

Top Gainers

  • Maruti Suzuki up by 6.40% was the top gainer on Nifty for the week - Maruti Suzuki gained on reporting higher-than-expected Q3FY22 result. The company has reported a net profit of Rs 1,011 crore, down 47.90% year-on-year (YoY) against a profit of Rs 1,941.4 crore in the same quarter last year. The company said despite cost reduction efforts, due to lower sales volume, high commodity prices and lower non-operating income on account of mark-to-market impact, its profits were comparatively lower.
  • Bajaj Auto up by 5.70% was another top gainer on Nifty for the week - Bajaj Auto has proposed to invest more than Rs 1,000 crore, which will include investments in a new unit for electric vehicles, under the production linked incentive (PLI) scheme as the leading two and three-wheeler player accelerates plans to widen its electric vehicle (EV) portfolio. Meanwhile, the company is likely to launch its new version of chetak.

Top Losers

  • Tech Mahindra down by 15.37% was the top loser of the week on Nifty - Tech Mahindra traded under pressure ahead of its third quarter (October-December) result year ended March 31, 2022. Meanwhile, Tech Mahindra has been recognized as the fastest-growing brand in brand strength amongst the top 15 IT services brands by Brand Finance, the world’s leading brand evaluation firm. Its brand value registered a robust growth of 45% over the last two years and jumped to $3 billion along with an upgrade in brand strength from AA- to AA+ rating. Tech Mahindra is also rated amongst the top 7 global brands in brand strength.
  • Bajaj Finserv down by 11.94% was another top loser of the week on Nifty - Bajaj Finserv continue to remain under 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 17,599.40 on January 24 and lowest level of 16,836.80 on January 25. On the last trading day, the Nifty closed at 17,101.95 with weekly loss of 515.20 points or 2.92 percent. For the coming week, 16,759.37 followed by 16,416.78 are likely to be good support levels for the Nifty, while the index may face resistance at 17,521.97 and further at 17,941.98 levels.

US Market

The U.S. markets ended lower during the passing week as the Federal Reserve indicated that it plans to begin raising interest rates soon. The Fed left interest rates unchanged at near-zero levels as widely expected but said the Federal Open Market Committee (FOMC) expects it will soon be appropriate to raise the target range for the federal funds rate. In an effort to combat the economic impact of the coronavirus pandemic, the Fed has left interest rates at zero to 0.25 percent since March of 2020. The Fed previously pledged to leave interest rates unchanged until labor market conditions have reached levels consistent with the FOMC's assessments of maximum employment. The central bank also said it would further reduce the pace of its bond purchases to $30 billion per month beginning in February, with the Fed saying it expects to end its asset purchase program by early March.

On the economic data front, preliminary data released by the Commerce Department showed a sharp increase in U.S. economic activity in the fourth quarter of 2021. The report said real gross domestic product spiked by 6.9 percent in the fourth quarter after jumping by 2.3 percent in the third quarter. Street had expected GDP to surge up by 5.5 percent. The stronger than expected GDP growth was partly due to a massive surge in business inventories, which added 4.9 percentage points, the second largest contribution since 1987. Meanwhile, the Labor Department released a report showing initial jobless claims pulled back in line with estimates in the week ended January 22nd. The report said initial jobless claims fell to 260,000, a decrease of 30,000 from the previous week's revised level of 290,000. Street had expected jobless claims to drop to 260,000 from the 286,000 originally reported for the previous week.

Pending home sales in the U.S. tumbled by much more than expected in the month of December, according to a report released by the National Association of Realtors (NAR). NAR said its pending home sales index plunged by 3.8 percent to 117.7 in December after sinking by 2.3 percent to a downwardly revised 122.3 in November. Street had expected pending home sales to edge down by 0.2 percent compared to the 2.2 percent slump originally reported for the previous month. The Commerce Department released a report showing new orders for U.S. manufactured durable goods fell by more than expected in the month of December. The Commerce Department said durable goods orders slumped by 0.9 percent in December after soaring by an upwardly revised 3.2 percent in November. Street had expected durable goods orders to decrease by 0.5 percent compared to the 2.6 percent spike that had been reported for the previous month.

European Market

European markets ended passing week on a higher note. The start of the week was in red, as Eurozone private sector growth eased in January as the Omicron variant hit the services activity. The flash survey results from IHS Markit showed that the flash composite output index slid to an 11-month low of 52.4 in January, from 53.3 in December. The score was forecast to fall to 52.6. Besides, France private sector grew at the slowest pace in nine months in January. The flash survey results from IHS Markit showed that the flash composite output index fell more-than-expected to 52.7 in January from 55.8 in December. The expected reading was 54.5. The drag on economic performance stemmed from the service sector as the production of goods rose at a slightly faster pace.

However, markets added gains towards end of the week, after German business confidence improved at the start of the year as companies expect the disruptions from the Omicron variant to ease in coming months. The survey results from the ifo Institute showed that the business climate index rose to 95.7 in January from revised 94.8 in the previous month. The reading was forecast to remain unchanged at 94.7. Further, Sweden's economic growth accelerated more than expected in the fourth quarter. The Statistics Sweden reported that gross domestic product grew 6.2 percent on a yearly basis in the fourth quarter, faster than the 4.7 percent expansion in the third quarter.

On the inflation front, Spain's producer price inflation accelerated for an eleventh month in December to its highest level on record. The preliminary data from the statistical office INE showed that the industrial producer price index climbed 35.9 percent year-on-year following a revised 32.2 percent increase in November. Besides, Sweden's producer prices increased to the highest rate in thirty years in December. The figures from Statistics Sweden showed that the producer price index grew 20.1 percent year-on-year in December, following an 18.1 percent rise in November. Prices rose for the eleventh month in a row. Import prices increased 18.2 percent yearly in December and rose 1.6 percent from a month ago.

Asian market

Asian markets ended in red during the passing week, as traders are reacting to hawkish comments from the US Federal Reserve, which indicated that it plans to begin raising interest rates 'soon,' citing elevated inflation and a strong labor market. Traders also remain concerned about the raging spread of the coronavirus omicron variant across the globe and its impact on the pace of economic recovery from the pandemic. Escalating Russia-Ukraine political tensions also sapped investors' appetite for riskier assets.

Japanese Nikkei fell by around three percent, as traders remain concerned about the sharp spike in domestic new coronavirus infections, with daily new COVID-19 cases in Japan surging to a new record of 78,929 cases on January 27, topping the 70,000 mark for the second day in a row to push hospitals and clinics to the breaking point. Traders also took a note of the Ministry of Internal Affairs and Communications stating that consumer prices in the Tokyo region of Japan were up 0.5 percent on year in January. That was shy of expectations for an increase of 0.6 percent and was down from 0.8 percent in December.

Chinese Shanghai edged lower by over four and half percent, on worries the Federal Reserve would move aggressively to curb inflation. Chinese shares ended almost flat after a former member of the monetary policy committee of the People's Bank of China said a looser monetary policy won't be sufficient to stabilize the Chinese economy and more government spending is needed to drive economic recovery. Seoul stocks too ended lower by over six percent as Central bank data showed that sentiment among South Korean businesses over the economic situation worsened in January due to higher logistics cost and weaker demand in the construction and electronics sectors. Traders overlooked Bank of Korea data showed that Asia's fourth-largest economy expanded at the fastest pace in 11 years in 2021, helped by a jump in exports and construction activity.