Markets will continue to remain under pressure

Indian markets witnessed a relief rally this week though bouts of profit booking continued amidst weak global cues and mixed corporate earnings. Both Nifty/Sensex gained 158/465 points (0.9 per cent/0.8 per cent) to close at 17,829/59,772. Recovery was much stronger in broader market with Nifty midcap 100/ Nifty smallcap 100 rallying 2.4 per cent/1.2 per cent respectively.

All the sectors ended in green with Realty being the clear outperformer (+9.6 per cent) followed by PSU Banks (+3.1 per cent). FIIs were marginal sellers to the tune of Rs 359 crore this week while DIIs bought equities worth Rs 306 crore.

Global cues were weak amidst mixed corporate earnings and cautiousness ahead of the much-anticipated Federal Reserve meeting, where Fed is widely expected to announce the withdrawal of pandemic-era stimulus.

Investors would largely be focusing on Fed’s commentary over inflation and rate hike, given that for months they have insisted such increases would be transitory. Asian markets witnessed pressure with equities and bonds of Chinese property developers down over worries about spreading of financial contagion from the China Evergrande Group’s debt crisis.

Also Read | Global trends, Q2 earnings, macroeconomic data to drive market trends this week: Analysts

On the domestic front, markets bounced back post buoyant PMI data and GST collections which boosted investor sentiments. Realty gained the most post strong Mumbai registration data for the month of October which was the decadal best performance and robust earnings reported by real estate companies. Technically, Nifty formed a bearish candle, and now it has to cross and hold above 18,000 levels for an up move towards 18,150 and 18,350 zones, else it may get stuck in between a trading range of 17,600 to 18,000 zones. On the downside, support exists at 17,600 and 17,500 levels.

Given Diwali was on Thursday, this week is a truncated one with all eyes awaiting the outcome of US Fed MPC which could provide direction to the future course of the market.

Otherwise on the domestic front, macroeconomic trends continue to see good recovery, with high-frequency indicators improving month on month. On the earnings front, companies have largely delivered in line with expectations.

Most companies have indicated of recovery in demand as the economy opened up although higher commodity and energy prices have exerted downward pressure on margins.

Companies have taken price hikes to pass on the impact of commodity costs, and the impact of it on demand remains to be seen. Nevertheless, companies have delivered a resilient quarterly performance in an inflationary environment and 2QFY22 earnings surpassing our expectations so far.

However, valuations are still at a premium and would demand consistent earning delivery going ahead. Thus market might continue to remain under pressure till valuations get reasonable and global cues improve.

(The writer is Head-Retail Research at MOFSL)

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