Here's how investors won the race on D-Street against COVID-19

Markets ended the fiscal on a positive note after a short volatile week, akin to the year gone by. The year was clouded by extreme pessimism to extreme optimism especially after a swift rally from the lows of March 20 to an all-time high of 15,431 in less than a year. This celebration across the globe was possible only because of a host of moving factors. From trillions of dollars as stimulus by governments to trimming of interest rates by central bankers, both these variables synergistically aided ground level demand revival and led to gradual economic recovery.

Timely initiatives from the Indian government through various PLI schemes for different sectors instilled confidence in the economy. Not to forget, FPIs, who from May’20 have been ardent believers in India’s growth story and continued their inflows into our markets. Such combined efforts managed to register a sharp recovery in global as well as domestic markets.

The year has indeed taught us a few lessons the main one being “Price is King” and that equity markets always behave in their own mysterious way. Back in March 2020, when investors feared a deep bear market, benchmark indices made a bottom, reclaimed previous highs and went on to hit new levels thereafter. Further, when investors assume that nothing can go wrong, equity markets always manage to pounce a surprise.

Therefore, it would be wise to be well informed of the possible risks which may knock markets’ door this fiscal. There are high chances that fears of a new strain and second wave of Covid in the country may extend the timelines of economy returning to normalcy.

Also, if the US decides to go with a hike in interest rates to curb inflationary pressures, capital flows might be routed to the US instead of India. Last but not the least, it is highly likely that post the COVID-19 recovery phase, geopolitical risks in the form of prolonged US-China tensions can come back in focus. All said and done, investors are advised to remain invested even though FY22 can be a volatile year with Covid’s low base effect lasting for atleast the first half.

Event of the Week

USD/INR pair witnessed strength this week especially after taking support at around $72.27/INR levels. The dollar hit a fresh one year high this week because of the massive infrastructure stimulus being announced and the accelerated vaccination drive against Covid. The optimism led to a jump in bond yields which also aided the dollar push and drove the USD/INR pair higher. Broadly speaking the rupee was well supported over recent months by huge foreign investor inflows into Indian equities and a further rise in yields can shift these inflows towards the US. Further depreciation of the rupee can also accelerate a vicious circle of outflows which will be negative for equities.

Technical Outlook

Nifty 50 index closed positive for the week, however, the market is lacking decisiveness in its direction as Nifty after bouncing from its channel support is still contained within Tuesday’s trading range and this week’s candle is also within the previous week’s range. Our market is actually witnessing a volatility squeeze while the trend in other emerging indices hints at a consolidation breakout on the upside. We suggest traders maintain a mildly bullish outlook. Immediate support and resistance are now placed at 14,260 and 14,880 respectively.

Expectations for the week

A noteworthy event to look forward to in the coming week would be the central banks’ MPC meet. It is expected that the RBI will continue with its accommodative stance on the back of uncertainty around the intensity of the second wave. Special attention should be given to the RBI Governor’s comments on the overall economic state. The Q4 result season is also expected to commence next week. The fiscal year 2020-21 taught us a great lesson of staying invested through the thick and thins of the market and we advise investors to keep a 5-7 years’ investment horizon to beat the volatility that the coming year will bring us. Nifty50 closed the week at 14867.35, up by 2.48%.

(The writer is Head-equity research, Samco Securities. Views expressed are personal)