Samvat 2077 — Year of unicorns and technology

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During this short but action-packed week, D-Street failed to glisten as the festival of lights approached and bears seem to be still holding their grip. However, looking back at Samvat 2077, markets have achieved milestone after milestone and delivered stellar returns, even amid our economy battling the pandemic! In hindsight, the pandemic has resulted in various long-term structural changes, the most significant one has been the rapid rise of the Information Technology industry. Businesses all across the globe are more eager than ever to accelerate their digital transformation. Technology adoption, which was formerly limited to certain sectors, has now become mainstream. Earlier, technology was merely a support division, but today it is at the heart of every business. With the advent of e-commerce, this move to online prompted major alterations in sectors such as travel, hotels, restaurants, entertainment, and education. With increased internet access, smartphone penetration and 5G modernisation in India, the user base of Indian tech-driven fintech, edtech, health-tech and e-commerce startups is rapidly growing.

This trend is backed up by India’s growing list of unicorns, which has resulted in the nation having the world’s third largest startup ecosystem. As a consequence, it was not unexpected that 2021 provided an appropriate opportunity for numerous such start-ups to make their public market debuts, with Zomato leading the way. This favourable response to unicorn IPOs might also signal a structural shift in investors’ perceptions of investing in startups based on growth prospects rather than their operational metrics. However, whether or not this trend continues will be decided only by whether these startups deliver on their ambitious claims and ultimately increase the wealth of their investors in the medium to long term!

Event of the week

The festival of lights has arrived, and with it, the hope for better business for automotive OEMs. Auto numbers did disappoint on a YoY basis. PV particularly was hit hard by the ongoing chip crisis and two-wheelers witnessed a double-digit decline. But there emerged a glimmer of hope as CV and three-wheeler sales gained traction. Additionally, when compared sequentially, all segments experienced higher MoM growth as OEMs took control of the situation and growth bounced back. The EV segment outshone all other sub-segments after hitting a new peak, as the developing EV infrastructure continued to act as a catalyst towards sales numbers. While green shoots have begun to emerge, investors may choose to take a tactical exposure to auto stocks, keeping in mind the evolving supply-side disruptions.

Technical Outlook

After two weeks of sharp declines, the Nifty50 index closed mildly positive, up 0.89 percent as compared to last week. However, the index continues to trade under pressure and is likely to do so as long as it remains below 18,000, which is the immediate resistance level. A break below 17,600 may trigger a retest of 17,350, which is the next crucial support. We maintain a bearish bias on the markets in the short term at least, till the immediate resistance level isn’t broken.

Expectations for week ahead

Given a slew of significant economic data releases and the ongoing earnings season, the volatility experienced this week is expected to persist into the forthcoming week as well. United States and China’s inflation figures will influence global markets. As long as inflation remains a concern, even D-Street investors will closely monitor domestic inflation rate, which has remained within the RBI’s comfort zone. However, an inflation rate that is sustainably higher than its tolerance level, coupled with the stance adopted by FED on the interest rate hike this week, may nudge the RBI to consider adopting a hawkish stance and begin policy tightening sooner than anticipated. Nifty50 ended the week at 17,829.20, up by 0.89 percent.

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