Uncertainty over new Covid variant to keep markets volatile

Investors recommended to buy on dips in a staggered fashion

Indian market snapped its two-week losses as value buying emerged post sharp pullback (~9% correction) witnessed from the recent high in October. Thus despite the concerns over the new variant Omicron, both Nifty/Sensex managed to gain 1% each to finally close at 17,197/57,696.

Broader market too gained in tandem with Nifty midcap 100/Nifty smallcap 100 up 1.2%/0.5% respectively. Sectorally it was a mixed bag, with IT being the biggest gainer – up almost 4%, followed by Metals and Media which gained more than 1% each.

On the other hand, Pharma was the biggest loser – down almost 3%, while Infra, Energy and FMCG closed in marginal red.

FIIs continued with their relentless selling, having sold to the tune of Rs 16,000 crore this week, while DIIs bought equities worth Rs 16,000 crore.

Globally, markets remained mixed though they did recoup some of their losses of the previous week as investors assessed the severity of the Omicron coronavirus variant and its impact on the world economy. Concerns about the effectiveness of current vaccines against this new Omicron variant kept investors on edge.

Sentiments got charred following the Moderna statement that existing Covid-19 vaccines would struggle to cope with the Omicron variant, predicting a ‘material drop’ in their effectiveness. The new variant has now spread to more than a dozen countries around the world, thus, prompting the introduction of new travel curbs.

However, investors did shrug off some of the concerns over Omicron and shifted focus towards positive economic growth. The sharp sell-off had made many stocks attractive and thus investors tapped into this opportunity to buy into dips, which helped markets recover. On the domestic front too, value buying was seen post 9% correction in the market. Positive strong macro data points, along with valuations becoming reasonable, uplifted market sentiments.

Indian economy clocked a healthy growth rate of 8.4% in Q2FY22, returning to its pre-Covid levels. Also, GST collections jumped to over Rs 1.31 lakh crore in November, the second-highest since its implementation in July 2017, in line with the trend in economic recovery. The seasonally adjusted PMI also rose from 55.9 in October to 57.6 in November.

Going ahead, market volatility is likely to continue given the uncertainty around the new Omicron variant and Fed tapering. Till clarity doesn’t emerge over its rate of transmission, hospitalization needs, etc, news flows around it would keep markets unpredictable.

Investors on Monday would react to the release of US nonfarm payroll data over the weekend which would provide a hint towards the Fed’s tapering plans.

On the other hand, eyes would be on RBI’s policy decision due next week wherein a status quo is likely to be maintained amidst a new Covid variant.

Despite all this uncertainty, the correction has made valuations comfortable. Given the robust long term fundamentals, investors are recommended to buy on dips in a staggered fashion.

(The writer is Head – Retail Research at MOFSL)