Last week was crucial for the global equity market due to the US Federal monetary policy meeting. Even though the Federal Open Market Committee (FOMC) was expected to maintain its super-easy money policy, the market started with a sharp sell-off as there were worries since it is expected to provide further insight over a possible slowdown in future liquidity measures.
The commentary was hawkish on a long-term basis as it does indicate tightening in the future due to good improvement in the economy & the pandemic situation. To get further insight, the market will dig into the minutes which is to be published next month. The next meeting is scheduled for September 21-22, 2021, which will provide further inputs about the scheduled relaxation in quantitative easing.
The outcome of the meeting was not a surprise. They are supposed to start with a drop in bond-buying program by early 2022. The low interest rate policy & the government’s huge fiscal stimulus is maintained. Hence, the possibility of a deep fall is low as the overall strength of the financial market is sustained.
This week, the market was also moved by the likes of the ongoing quarterly results & Chinese havoc. A crackdown in Chinese education, property and tech sectors impacted the performance of Asian peers due to the government’s regulatory tightening. After the deep fall, the Chinese authority’s attempts to calm global investors stating relaxed measures than feared and pumped liquidity into the financial system, which helped the market to take a breather.
Domestic market was affected by the global sell-off, however, it partially recovered by the weekend. Pharma stocks ran down after a weak start to its sector earnings. It created panic as the industry is highly priced after the gains made from the pandemic. The expectations are high and some set of positive Q1 results will be required to resolve the downside industry fall, which is trading under bear’s grip.
Metal stocks are sparked by the huge infrastructure fiscal package finalised in the US. It is also supported by reports stating rise in export duty and fall in supply from China, the largest steel producer. Both these factors will lead to increase demand & spike in international prices. We can expect Metal & Mining sector to lead a better quarterly result, which is a good indicator for the future stock performance.
Over the last 2 months, we are noticing rise in global & domestic market volatility. The equity market has been undergoing a phase of consolidation. In that the main indices like Nifty50 & Sensex are unable to move to the next levels while broad indices are more robust. Rising uncertainty in global market from a possible fall in liquidity, high inflation, delta variant and high valuations are provoking dilemma & intermediary selloffs. Asian peers are deeply underperforming the world market due to FII selling. A further fall in foreign inflows will impact the Indian market which is currently protected by strong domestic inflows.
We are in a phase of settlement and presume that this consolidation will be in the short to medium-term as overall easy money policy, fiscal support and rate of economic recovery is maintained in 2021-22. Future momentum will be on stock to sector basis. Sectors that look promising are IT, consumption, chemicals, metals, auto & banking. During the year, you should churn your portfolio into a balanced holding to reduce the overall risk of individual portfolios.
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