The equity market is on a rise for the fourth straight session today with the Nifty50 index topping the 18,200 points and the BSE-Sensex gaining more than 500 points intraday.
The risk appetite on Dalal Street has seen a sharp recovery with the turn of the year with gains being spread out across market segments. The Nifty Midcap 100 and Nifty Smallcap 100 index also rose 0.7 percent each, matching the gains on the Nifty50 index.
“The market has sustained well above the 18,000 level. We should be looking forward to 18,400-18,500 as the next target. Since the market has good support at 17,700, any intraday correction should be used to accumulate long positions on the Nifty,” said Manish Hathiramani, technical analyst at Deen Dayal Investments.
Let’s look at the four major factors that are boosting the confidence of investors on D-Street.
Receding Omicron Threat
The emergence of the new COVID variant in late November was one of the primary drivers of the correction in the domestic and global equity markets across December. The rapid spread of the virus around the world in a matter of weeks raised concerns over the sustenance of the global economic recovery.
The recent decline in cases in cities such as Mumbai has given investors hope that the third wave of the pandemic in India could be short-lived as compared to the devastating second wave in the summer of 2021. The low level of deaths and hospitalisation seen in Mumbai, where a large part of the population has been vaccinated, has further strengthened investor confidence that Omicron’s impact on the economy will be much smaller than that was felt after the first and second wave of the pandemic.
Return of Foreign Investors
After pulling out more than Rs 35,000 crore from the domestic secondary market in December, foreign investors have returned to the market albeit at a smaller scale. So far in January, the foreign portfolio investors have net bought domestic stocks worth more than Rs 3,500 crore suggesting that they are again finding valuation comfort in the market.
Amish Shah, managing director and head of research at BofA Securities India, had earlier this week said that FPI flows could be positive for India in 2022. He also expects outflows from the Chinese market to trickle down to India. The return of FPI investors is likely to boost the confidence of domestic investors in the market’s future returns.
Strong Earnings Expected
The December quarter earnings season will kick off later today with IT biggies TCS, Infosys and Wipro declaring their third quarter numbers. Analysts expect the third-quarter earnings for India Inc to remain strong on the topline front, while operating performance is expected to be hit by rising raw material costs.
Brokerage firm Motilal Oswal Financial Services expects earnings of Nifty50 companies to grow at 22 percent year-on-year despite the high base in the year-ago quarter. The growth is expected to be led by metal, financial services, and information technology companies.
Overall, the strong rebound in economic activity in the December quarter due to the easing of COVID-19 restrictions is expected to boost both sales and bottomline of India Inc.
Quantitative TighteningLast week, investors were blindsided by the minutes of the US Federal Reserve’s December monetary policy meeting that showed that the central bank had held a discussion on reducing the size of its balance sheet.
The US Federal Reserve had swelled its balance sheet to record highs during the pandemic to provide liquidity to the financial markets during the dark days of the pandemic in 2020. The mention of the possible quantitative tightening (as against quantitative easing where the central bank’s balance sheet expands) had sparked fears that the US Fed could start it as soon as March.
US Fed Chairman Jerome Powell’s comments on Tuesday to the US Senate eased these fears. He said that it takes two to four meetings for the rate-setting panel to arrive at a decision on any reduction in the size of the central bank’s balance sheet.
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