While the popular narrative is moving around inflation and economic recovery, there are distinctive signs indicating that the current inflation may be a supply shock and therefore is transitory.
Insofar as the economic recovery is concerned, it may be Schrödinger’s cat. It is possible that the economic recovery is entirely based on the persistent infusion of abundant liquidity and prevalence of near zero or negative rate of interests. A hike in rates or significant withdrawal of liquidity might actually lead to the economy faltering. There is no way to test this hypothesis unless the rates are hiked or liquidity support is withdrawn; and no one would dare do that presently. I say so, because this could upset Ms. Market and she would certainly not like it.
This brings me to a very pertinent question “what is more important at this point in time for the policy managers – markets or sustainability?
Investors looking to cross the Atlantics this summer
Recently, a number of advisors of have started pushing for a material exposure in European equities. The push has gathered more force after the recent FOMC meeting. This seems to be a global trend as most investors and traders are finding the valuations in European equities much cheaper; ECB and BoE more supportive, and volatility lower. In fact, over the past few weeks, European equity flows have been at the highest levels in three years.
More inside this issue – Find attachment
Market outlook for this week
The daily and weekly technical outlook & trend for Nifty is “Neutral” for this week. However, the monthly trend is now marginally negative. The outlook and trend for Bank Nifty however remain positive on daily, weekly and monthly timeframes. (Read more)
Brokerage houses are generally positive on the economy and markets. The corporate results for 4QFY21 in particular and FY21 in general have been quite encouraging. Despite the disconcerting rise in prices, RBI appears determined to support the growth by keeping the policy accommodative. The abatement of second wave of Covid19 pandemic has resulted in decent normalization of economic activity. Despite the continued logistic constraints, the export performance has been encouraging.
The broad assessment is that the impact of second lockdown would be limited to 1QFY22 and may not reflect materially on the earnings of FY22. However, the second wave has resulted in moderation in earnings estimates and the ratio of revisions has turned in favour of downgrades after two quarters of upgrades.
On the other hand the hints dropped by the US Federal Reserve about possibility of monetary tightening have created uncertainty about the direction and extent of global flows. Some concerns have been expressed about the reversal of FPI flows leading to market corrections.
Some concerns have also been expressed about the impact of sharp correction in commodity prices on the equity markets. However, generally the sentiment remains supportive of the metal rally continuing. (Read details)
Indian Market (Equity)
Indian markets remained buoyant last week. However the level of activity fell materially though it was still above 12month average. This is significant because it was an F&O expiry week which historically has witnessed higher level of activity. Cyclicals led by PSU Banks and metals were best performers, while consumers and energy were notable underperformers. IT remained a strong performer. Market breadth was good. Domestic institutions were good buyers after many weeks. (see more)
Indian Market (Debt & currency)
Benchmark yields were higher marginally, so were overnight rates. INR weakened against USD, but was stronger against GBP, EUR and JPY. Credi risk funds remained top performer on one, three and twelve month timeframes. (see more)
Commodity were generally buoyant last week. Energy, Precious, base metals and coal prices staged a strong recovery, while Steel was little weak. Agriculture commodities were weaker. Natural Gas and Nickel were the best performers. (see more)
Global Markets last week
Charts of the Week.
India in pictures.