With the next week being the end of the calendar year and no major event lined up, markets may remain lacklustre for the week. We would enter the calendar year 2023 (CY23) with uncertain global factors, like recessionary fears, geo-political risks and rising Covid cases in China that could keep the equity markets volatile.
US Fed policy actions in 2023 along with RBI’s would also hold importance where any moderation might encourage markets to pick up momentum.
We expect two themes to play out in CY23 viz credit growth and capital expenditure. Thus, sectors like BFSI (banking, financial services and insurance), capital goods, infrastructure, cement, housing, defence and railways could be in focus.
In the week ahead, markets are likely to remain volatile given the uncertain environment and rising Covid cases globally.
Sentiments got dampened after the Covid situation in China got worsened and a sudden spurt of cases was witnessed in the USA, Korea, Brazil, and Japan. Bank of Japan too took markets by surprise as it raised its interest rate to 0.5 per cent from 0.25 per cent.
This elevated the growing recessionary fear among investors which is fading hopes of a Santa Claus rally. We advise traders to keep positions light in view of increasing volatility and trade with strict stop-loss. However, any decline will be a good opportunity for investors to gradually accumulate fundamentally quality stocks. The market might shift focus towards Covid-sensitive sectors and budget-oriented sectors with the budget just a month away.
Last week, domestic equities got spooked by sharply rising Covid cases with the Nifty plunging 2.5 per cent to close below the 18k zone – marking the third weekly consecutive fall. The broader market saw a much sharper decline with the Nifty Midcap-100 down 6 per cent while the Nifty Smallcap-100 nosedived 8 per cent. Selling was seen across the sectors with PSU banks, metals, oil & gas and realty bearing a major brunt. Pharma was the only gainer for the week. India VIX on the other hand surged 15 per cent to above 16 levels reflecting weaker sentiments.
Nifty started witnessing selling pressure after the Centre issued an advisory to states to step up measures to tackle the new Covid wave. As a result, Covid-sensitive sectors like pharma and diagnostics have gained traction and are expected to remain in momentum. On the other hand, sectors like travel and tourism, hotels, airlines, entertainment and retail sectors are witnessing some pressure.
(The writer is Head - Retail Research, Motilal Oswal Financial Services Limited)