Domestic indices started with a gap-up maintaining the ascendancy of last week, from the strong mutual fund (MF) & retail inflows. Weak domestic data like contraction in manufacturing & service PMI had no negative impression on the Indian market that is focusing on the future benefit from unlocking. Initially, India was decoupling despite the mixed sentiment of global equity market and sell in US Bond, ahead the announcement of FOMC minutes. The released note was in-line with expectation but did not have any positive effect on the market, the weakness continued. The weakness increased because of sell-off in US10year bond yield, which crumpled from 1.55 percent to 1.35 percent, steepest monthly fall in more than a year, influencing the equity market. Strong US job data released signaled that the economy is recovering at a steady pace while rising threat of delta variant to economy recovery eased concerns over earlier-than-expected Fed rate hike.
Indian market weak performance was driven by financial stocks, as business updates of major Banks and NBFCs showed improvement in the business activity in Q1FY22, minimising concerns over second wave impact on asset quality & loan growth. Healthy pre-sale numbers boosted buying interest in realty stocks and metal stocks followed the trend. But continued weak global market, surge in oil prices & profit booking breached the overall market by the end of the week.
Going ahead mixed global cues and weakness in Asian markets, especially in China & Hang Seng as the government clamps against large private companies, will increase domestic volatility. Focus will be on upcoming Q1 FY22 results, on which market was already cautious being expected to be slower than last quarter due to second wave effect. Initially spotlight will be on IT heavyweights’ results. TCS already started with lower-than-expected results, which will have a negative effect on the short-term.
Other than this, investors interest is more on new business IPO offerings. This month focus will be on primary market than secondary market. Record high fund-raising plans of Rs 25,000 crore is forecasted in the near-term from primary market, which will have a negative effect on secondary market liquidity, in the short-term. For retail investors, since the overall interest on ongoing IPOs is very high, the change of allotment for small size offers will be low. In that the probability will be highest in small lot size. In the case of big & mega IPOs, the probability will increase rapidly. Having said that, the expectations on listing gains and short to medium term stock performance will be moderate. This is because of lower subscription & high valuation of such companies. And in the end, the performance of the future stock prices will depend on the business model, industry outlook and profitability.
The rally since 2020 March lows was highly supported by high retail inflows. High domestic retail participation was triggered by global rally, attractive prices, rise in risk taking appetite given lack of substantial change in personal income, fall in cost of leverage and rise in free time. The long-term benefit to Indian market from rising appetite of retail investors will continue to help. While in the short to medium-term, it will heavily depend on the trend of global market which in turn rely on accommodative monetary & fiscal plans maintaining the lucrativeness of equity asset. Ultimately, it depends on the ability of retail investors to maintain profits in trades. Today, global market is undergoing a phase of consolidation. It seems short-term in nature as overall factors which adds effectiveness of equity assets is intact. In addition to global factors, premium valuation and possible slowdown in secondary market liquidity can influence inflows of retail investors, this is at a time when FIIs are on a selling mode that would affect the momentum of Indian Market.
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