Indian Equity markets witnessed increased selling pressure this week on the back of weak global cues due to concerns over rising inflation and risks of interest rate hikes earlier than expected. Both Nifty/Sensex fell 338/1,051 points (-1.9%/-1.7%) to close at 17,765/59,636 respectively.
The broader market which was holding off initially too felt the selling pressure and ended the week in red with Nifty midcap 100/ Nifty smallcap 100 falling -2.0%/-1.3% respectively. All the sectors ended in red with Metals being the biggest loser (-5.3%) followed by PSU Banks (-3.4%) and Realty (-3.3%).
Foreign institutional investors have sold equity of more than Rs 6,000 crore in November so far while DIIs have bought equities worth Rs 7,800 crore in November.
Global markets continued to show weakness as investors remained concerned over growing inflation and the impact it could have on monetary policy and growth outlook. The US Dollar surged to a 16-month high after US retail sales data came in much higher than expected. At the same time, the Euro fell on the back of growth concerns and a rise in Covid-19 cases.
On the domestic side, 2QFY22 earnings came in above our expectations, led by a) cyclical sectors (such as O&G and Metals), b) improved asset quality in the BFSI sector, and c) strong topline growth in the Technology sector.
The quarter brought to the fore two important trends: an improving demand environment and the impact of rising input costs on operating margins.
The overall market is in consolidation mode as valuations are rich despite good quarterly performance.
Also, global cues are keeping markets volatile – as inflation concerns have dominated headlines and the Fed starting the tapering programme soon.
Technically, Nifty has formed a bearish candle on the weekly scale and it is forming lower highs - lower lows from the last three sessions. In the near term, weakness could continue towards 17,650-17,500 zones until Nifty remains below 17,850.
We expect the long term fundamentals of the market to remain positive and hence advise investors to keep accumulating quality stocks on declines. In the near term, however, the market may remain under pressure until fresh positive triggers appear.
Markets will take direction from macro events due next week. Major data includes Manufacturing and service PMI for the UK, the US existing home sales data. US will also release Manufacturing and service PMI data.
Investors will keenly wait for US & German GDP data that will be released later in the week.
On the initial public offering (IPO) front, there would be some excitement around the listing of Latent View on Monday as the IPO was oversubscribed 326 times.
(The writer is Head- Retail Research at MOFSL)
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