Moneycontrol Pro Panorama | Take guard, expect more swings in the market

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Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

Multiple headwinds have contributed to increased market volatility globally. In the first week of December, volatility initially rose by 20 percent on news of Omicron, the heavily mutated variant of the coronavirus, spreading. But, after various agencies reported that the symptoms were not very severe, the volatility index fell by 20 percent.

Markets recovered from their sharp fall after the US President’s chief medical advisor Dr Anthony Fauci said, “Thus far, it does not look like there’s a great degree of severity to it.” The statements were supported by a research report from the South African Medical Research Council (SAMRC), which pointed out that a much smaller fraction of those admitted required supplemental oxygenation than in the earlier waves.

The good news cheered Indian markets too, with its benchmark indices rebounding from their 3-month lows and continuing their upward journey. In December, the Nifty 50 has recovered from its low of 16,893 hit on December 6, to the present levels of 17,428, a gain of 3.16 percent.

Does that mean the worst is behind us? Not really, according to the SAMRC report, it is still early days and the situation may change “significantly in the next two weeks ahead”. Analysts are also apprehensive about the rising number of Omicron cases in India.

A Motilal Oswal Financial Services report says: “Sectors/stocks exposed to markets with rising COVID-19 cases/greater prevalence of the Omicron variant may underperform. Expect sector rotation to continue and defensives like pharma, information technology (IT), and consumer to make a comeback till sentiment improves.”

Besides the Omicron threat, other headwinds will continue to affect markets. Morgan Stanley pointed out in a recent report: “The risk is that if and when the US 10-year real rates rise sharply in a short span, this would create volatility in Asia’s financial conditions, though we believe that the eventual impact would be more muted than in 2013. If this risk scenario pans out, we see India and Indonesia as the more exposed economies.”

survey of economists’ expectations published in the Financial Times (free to read for Pro subscribers) says the Fed could finish tapering asset purchases by March-end and start increasing rates soon after.

While the market may have recovered from its low, rising interest rate in the US and the likelihood of a policy gridlock following the US mid-term elections will weigh heavily on global markets. Given this scenario, foreign investors’ selling, which crossed Rs 6,000 crore in the first week of December after over Rs 22,000 crore of selling in the previous two months, is likely to continue.

For Indian markets to perform, corporate earnings have to show a marked improvement. GST numbers and festive sales have been better than expected, raising hopes for a positive surprise in the December quarter earnings season. However, higher input cost and any risk of a supply-side disturbance can affect the numbers.

Credit Suisse does not expect a very high return in the year ahead. In a note, it said, “We believe that earnings should remain the key driver of equity returns in the year ahead, enabling equities to deliver sound, though somewhat lower, single-digit returns.”

Meanwhile, the monetary policy committee (MPC) stuck to its line, but made some tweaks to adjust liquidity, you can read our analysis on the MPC report here.

More investing insights from our research team:

What else are we reading today?

Picks from our technical analysts: ICICI Bank, Tata Steel, NALCO and Vedanta  (These are published every trading day before markets open)

Shishir AsthanaMoneycontrol Pro

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