Testing Time Ahead – Nifty gave up most of the gains, which it recovered in April-22,
correcting from 18100 to 17000, down by 6%, on account of disappointing Q-4
numbers, geo-political tensions, rate hike by Fed, lockdown in China and rising
inflation (as the main reasons for this fall).
Stagflation is now a real risk around the world, where the economic growth
rate has become slow, unemployment is high, accompanied by high inflation.
Central Bankers (apart from the US) are in dual mind whether to increase
rates, or hold-up. We expect markets to be range bound for next 3-4 months and
advice clients to accumulate gradually on every fall. Do not expect higher
returns immediately and one can see some green shoots visible during the Diwali
period or later.
Key Events – May 2022:
- Fed meet on 4th
May, 50 bps rate hike expected, with a commentary on the pace of further rate
hikes crucial – Negative for the markets. - Russia to
celebrate its annual Victory Day over Nazis on 9th May and likely to
announce its further strategy on Ukraine War. - LIC IPO to start
from 4th May, with an issue size of 21000 Cr, biggest ever IPO till
date.
During FY22, FIIs sold ₹1.40 lakh
crore in equities compared to the last year
when it was a net buyer of ₹2.74 lakh crore. Meanwhile, DIIs were net buyers of
₹1.26 lakh crore in first eleven months of FY22 compared to net sale of ₹39,000
crore last year. Apparently, this is one of the worst outflows from India by
FIIs in many years.
All this is because of the unexpected pandemic, that hit the country badly followed
by another event that escalated inflation in the country – i.e., the
Russia-Ukraine war — and most importantly because of monetary tightening in
the US, which makes the US debt market more attractive to FIIs. And hence the
huge sell-off.
Even after a challenging time since COVID-19 that triggered the sell-off by FIIs, markets do
not seem to be intimidated by the selling spree of foreign investors as
domestic institutional investors (DIIs) have come to the rescue like never
before. The constant surge in systematic investment plan (SIP) inflows is among
reasons markets have been offsetting most of the selling pressure from foreign
investors as every market correction is seen as an investment opportunity.
