Equity markets under bulls control

Markets started the 2022 on a positive note, with both Nifty and Sensex gaining 459 and 1491 points respectively(+2.6% each) to close at 17,813/59,745. Broader market too gained with Midcap 100/Smallcap 100 up 2.2%/1.8% respectively.

The positive momentum was largely led by banking and Financials which rallied 5-6%. All other sectors too participated except for IT and Pharma which witnessed profit booking.

Markets kicked off calender year 2022(CY22) on a strong note with FIIs returning to the market after being persistent sellers for last three months. Further expectation of another good quarter also lent support to the market, though sharp surge in covid cases and implementation of restrictions capped the gains.

FIIs post three months of continuous selling, turned net buyers with the start of the new year and bought equities to the tune of Rs 1000 crore. DIIs bought equities worth Rs 3300 crore during the week.

Global markets too started the year on a positive note despite the rising Covid cases across the countries, mostly on the hopes of steady economic recovery. Most of the economic data that came during the week across geographies were encouraging.

However, hawkish statement from US Fed meeting minutes with regards to policy tightening spooked the investors during the week.

Meeting minutes pointed to a faster-than-expected rise in interest rates due to concerns about persistent inflation.

Investors also got cautious ahead of the release of key US employment numbers for the month of December.

As we step into CY22, the focus of central bankers across the world has shifted towards inflation and monetary policy normalization post the pandemic given the context of US Fed Tapering and potential hardening of interest rates in CY22.

Meanwhile, the third Covid wave has once again resulted in imposition of some state-level restrictions. While this wave, so far, seems less severe in terms of mortality and hospitalization, one needs to watch out for the trend and reactions of both the state and central governments in the next few weeks.

While the market trend might be volatile in the near term on account of potential risk from Omicron variant, upcoming budget and fragile global cues, in the long run, strong earnings delivery along with
positive macro-economic data would hold the key to drive markets.

We remain optimistic and expect Nifty to deliver around 12-15% returns in 2022, supported by continuation of economic recovery and strong earnings growth.

(The writer is Head-Retail Research at MOFSL)