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Below is the weekly article on Market By Ms. Yesha Shah, Head of Equity Research, Samco Securities

Markets in chaos; Time to find the calm?

Global markets were in the midst of a selloff this week, primarily due to the expectations of Fed's stance and mounting concerns in Ukraine about a potential war with Russia. Moving in sync, Dalal Street was painted red as the Indices began the week with their biggest decline since April 21. Spills of this bloodbath permeated into the whole week, leading to a major shift in the overall sentiment; from greed to extreme fear. The India VIX also broke the 24 mark for the first time since May'21. This grisly market tone is also evident from the advance-decline ratio of the first trading session of this week standing at 0.09, which is considerably below the 2021 average of ~1. In fact, the average number of stocks hitting a 52-week low in the last 5 trading sessions climbed to 56, as compared to merely 19 for the rest of the month. Supplementing the same, as of 27^th Jan nearly 66% and 48% of the Nifty 500 stocks were trading below their 50 & 200 DMA respectively, signifying that clean up of the froth is underway.

While the market is surrounded by uncertainty and fear, investors should recall that these corrections are not uncommon. Retail investors, in particular, should prepare themselves for similar market volatility to go on throughout the year, as various monetary and fiscal policy changes are slated to take effect in 2022. While India's larger bull cycle remains intact structurally, there will be roadblocks along the way. Investors should keep in mind the advice of the veteran investor Warren Buffet, who said “be fearful when others are greedy, and be greedy when others are fearful.” In the long run, therefore, these corrections present an opportunity for investors to selectively pick up stocks of fundamentally good companies that provide some valuation comfort. Investors should avoid stocks that have gained solely on the basis of excitement with a significant fundamental gap. 

Event of the week

To combat rising inflation, the Fed announced plans to begin raising interest rates as early as March of this year. The Fed also announced an additional USD 30 billion cut in monthly bond purchases for February'22. The unemployment rate dropping below 4% to pre-pandemic levels also pushed the Fed to accelerate the withdrawal of policy support. Separately, it stated that the process of balance-sheet reduction will begin once interest rates are raised. Although the Fed kept policy rates same this week, the hawkishness of its stance frightened global markets. Back home, the increased tapering and the possibility of a rate hike may slow the flow of foreign funds into our markets.While India is currently in a stronger situation than it was during the Taper Tantrum in 2013, more volatility as a result of interest rate rises cannot be ruled out.

Technical Outlook

Nifty closed negative for the week and is trading around its 100 day EMA on the daily chart. The recovery in the last trading session indicates that the index seems to have found a cushion at the previously established demand zone of 16,850. The BankNifty index is also bouncing from the short-term averages on the daily chart. These pieces of evidence are hinting at the continuation of the major uptrend. We suggest traders maintain a bullish bias as long as the Nifty does not fall below 16,850. However, a break below the same can trigger a fall up to 16,000 levels. The immediate resistance for the index is now placed at 17,650.

Expectations for the week

The Union Budget will be the talk of the town, and market players' reactions to policy announcements may cause whipsaw fluctuations. Furthermore, the automobile industry's monthly sales figures are sure to pique the interest of investors attempting to forecast future trends in auto stocks. With the Q3FY22 results season in full swing, investors may anticipate some stock-specific fluctuations to contribute to the mood in the short term. With a busy week ahead, investors should avoid aggressive wagers and have their money ready to deploy in the scenario of a deeper panic. The Nifty50 closed the week at 17,101.95 down by 2.92%.

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