Omicron to keep markets volatile

Indian market ended the last week of 2021 on a positive note, with both Nifty and Sensex gaining 350 and 1130 points respectively, up 2 per cent each to close at 17,354 and 58,254 respectively. Broader market outperformed with Midcap 100/Smallcap 100 gaining 2.8 per cent/4.1 per cent respectively.

Except Media (-1 per cent), all other sectors ended in green with pharma seeing the most buying interest – up more than 5 per cent. It was followed by auto, IT and financials which gained 2-3 per cent each.

FIIs continued their selling, though the quantum has tapered down. For the week they sold to the tune of Rs 2,200 crore while DIIs bought equities worth Rs 4,200 crore over the same period.

Global markets started the week on thin volumes due trading holiday in various regions on account of Christmas and New Year. Though there were concerns and cautiousness due to fast spread of Omicron globally and various curbs and restrictions getting implemented, some countries are trying to limit the economic damage by setting restriction on travel rather maintaining complete lockdown.

On the other hand, few positive data points during the week were encouraging. US retail and e-commerce sales jumped 8.5 per cent and 11 per cent respectively during this year’s holiday shopping season from November 1 to December 24, underscoring the Covid-19 pandemic’s role in transforming customers’ shopping habits.

China's manufacturing sector too continued to expand in December, providing some relief as the country continues to struggle with a property market slump.

Domestically, despite the mixed global cues and fast spread of Covid cases, market maintained positive momentum during the week post the 10 per cent+ pullback that it witnessed recently. For the full year 2021, Nifty gained 24 per cent while all the sectoral indices closed in the green. This was the fourth consecutive year of positive return that the Nifty witnessed.

Going ahead, the positive momentum is expected to continue in 2022 as well. However, it is likely start the New Year 2022 with its cautious sideways movement as Omicron spreads rapidly both in India and globally.

For the full year, we are optimistic and expect Nifty to deliver around 12-15 per cent returns in 2022, supported by continuation of economic recovery and strong earnings growth. After the recent correction, Nifty is now trading at ~20x 12 month forward PE which is no longer in the expensive zone.

While the market trend might be volatile in the near term on account of potential risk from Omicron variant and fragile global cues, in the long run, strong earnings delivery along with positive macro-economic data would hold the key to drive markets upwards. Q3 results season and build up to the upcoming budget session would be key events that the market would be looking for in Jan 2022.

(The writer is Head-Retail Research at MOFSL)

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