Markets getting back on track as Omicron worries wane

Indian markets continued their positive momentum for the second week in a row, post the sharp correction witnessed recently, as the concerns with regards to Omicron recede.

Both Nifty and Sensex gained almost 2% each to finally close at 17,511 and 58,787 respectively. Broader market outperformed with Nifty midcap 100/ Nifty smallcap 100 up 3.0%/3.9% respectively.

All the sectors ended in green, with media being the biggest gainer – up 9%, followed by PSU Banks, metals and realty which gained 5-6%. On the other hand, Pharma ended flat, while IT and energy were lacklustre with less than 1% gains.

Foreign institutional investors (FIIs) continued with their relentless selling for the eighth week in a row, having sold to the tune of Rs 9,000 crore this week, while domestic institutional investors (DIIs) bought equities worth Rs 7,000 crore.

The recent discovery of the Omicron coronavirus variant had derailed equity markets predominantly over concerns that the new variant might affect the long awaited global economic recovery, at a time when the Fed has signalled a speedier tapering of monetary stimulus to tackle the recent surging inflation.

However, global sentiments turned positive and markets across the world rallied post early indications that the Omicron variant might possibly prove to be less serious than initially expected. Further statements by Pfizer and BioNTech’s on their vaccine offering some protection against the latest variant helped equities regain some ground.

Apart from this, Chinese authorities signalled about plans to stimulate the country’s current slowing economy, which too uplifted sentiments. Investors though turned cautious towards the end of the week, ahead of US inflation data scheduled to release on Friday which would provide hint towards what to expect from Fed’s Open Market Committee (FOMC) meeting due next week. In addition, tightening of Covid restriction by UK amid uncertainties and recent surge in cases too dented the sentiments.

On the domestic front too, receding concerns over Omicron and accommodative statement by RBI in its MPC uplifted the investor sentiments. RBI in its monetary policy meeting decided to keep repo rate unchanged at 4%. The central bank retained its GDP growth forecast at 9.5%, and inflation at 5.3 % for the full year.

Going ahead, market volatility is likely to continue given the uncertainty around the new Omicron variant and Fed tapering. Investors on Monday would react to the release of US inflation data over the weekend which is expected to come at elevated levels and could strengthen Fed’s tapering plans while accelerate interest rate hikes.

Thus, Fed’s meeting due next week would be the key event to watch out for, which could provide direction to the market. Despite all this uncertainty, the correction has made valuations comfortable and many stocks are available at attractive levels, thus investors are recommended to buy on dips in staggered fashion.

(The writer is Head - Retail Research at MOFSL)