This week, the factors which defined the market performance were State elections result, rising COVID cases amid second wave, Q4 corporate results and global headwinds.
State election outcome was below the market’s expectations. Criticism against the central government for not able to curb the second wave along with the conduct of heavy election rallies were the major points. The outcome is unlikely to have any implication on central policies & economic affairs. As per history, state election result has never impacted the trend of the market in the medium to long-term. State election volatility for the market diminished during the week and moved in tandem with other factors.
Rising COVID cases, which has led to healthcare crisis and drop in factory output has led to a stagnation in consumer & market sentiment. India’s manufacturing PMI in April was flat at 55.5 with a mild change from March’s data of 55.4 mainly due to pick up in international demand for Indian goods. India’s Service PMI index reported marginal decline in April to 54.0 from 54.6 in March 2021 owing to slowdown in external demand and escalation of the pandemic. This is expected to further decline in May and June while the big picture is that Q1FY22 will be the worst, and would improve on a QoQ basis from Q2FY22 onwards.
RBIs policy is expected to provide additional liquidity, and supportive measures will help COVID-impacted sectors.
The pace of Q4 results announcement is slow this quarter due to COVID. About less than half of the results are announced marginally below expectation. The result season had started in-line with expectations but latest trend is weak. Initial IT results were in-line though it did not add additional outlook, while the latest tier 2 results are below par.
Then we had financials results which are well below the forecast with further rise in NPAs and provisioning. Consumer Goods are also below the expectations. The sectors which are still hopeful are metals, energy, pharma, chemicals and heavyweights. If we concern management commentary, in overall, they are confident of post-COVID scenario.
Global market got volatile in between due to concern that US Fed may increase interest rate to curb inflationary pressure. But this concern diminished post clarification that US government and central bank will continue the massive stimulus campaign as elaborated earlier. Inflation may be on the higher-end during the short to medium-term in US & EU. A fall in technology heavyweights was reversed and US & European futures raised by the end of the week.
The news flow this week has been a mixed bag – with negatives like mixed state elections result, extended localised lockdowns and positives like RBI’s supportive policy and US Fed’s commentary. But the domestic market is hesitant to move in a clear direction. It is trading mixed, with a negative bias and a strategy to sell in rally. This is because the core domestic issue is not solved – continued high daily COVID cases
Experts say a fall is likely by May-end or June. Till that happens, selling by foreign and domestic institutional investors could continue. At the same time, supportive fiscal & monetary policies by RBI and the government are providing some stability in the overall market.
Going forward, further worsening COVID situation will have detrimental effect, nevertheless long-term trend is intact. To be stocks and sectors specific, orientation towards the beneficiaries from pandemic with ability to sustain is the key to invest in the market.
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