This Week in a Nutshell (24-28 Jan)

Technical talks

NIFTY opened the week on 24^th January at 17,572 and ended at 17,102 on 28^th January. NIFTY fell 2.9% throughout the week, forming a bearish engulfing candle on the weekly chart. The next support and resistance levels for the index would be 16,840 and 17,635 respectively.

Except for PSU BANK (+6.9%), and Bank (+0.3%), all the sectoral indices fell this week, with IT (-6.1%), Realty (-5.2%), and Infra (-2.4%) being the biggest losers.

Weekly highlights

• Financial markets started the week on a volatile note on the back of fears of monetary tightening as the Fed announced that they would start raising interest rates. Nevertheless, volatility intensified with erratic stock movements amid shaky company earnings cast doubt on the strength of the recovery from the COVID-19 pandemic. The US stocks closed the week in the green, S&P up 0.8% and Nasdaq up 0.1%.
• Equity markets in India also witnessed volatility during the week due to the ongoing results season, the Fed meeting, and mixed budget expectations.
• Continual commodity cost rise is creating pressure on margins across the board especially FMCG, consumer, and chemical companies. To sustain margins and maintain topline growth, companies have implemented price increases in conjunction with cost-cutting strategies.
• On 26^th January, US Federal Reserve Chairman Jerome Powell announced that the US job market was robust enough to absorb rate rises and that the current tightening cycle would be different from previous ones. The Federal Reserve is expected to raise interest rates in March-22 and maintain plans to conclude its bond-buying program that month to keep inflation under control.

• Oil prices on 27^th January hit a seven-year high, Brent crude was above $90 a barrel, as the market balanced concerns about tight worldwide supply amid Russia- Ukraine tensions and the expectations that the US Federal Reserve will soon tighten monetary policy. Closing prices of Brent crude futures and WTI crude futures were $89 and $87.3 per barrel respectively as on 29th January 2022.
• The US gross domestic product (GDP) grew at 6.9% higher than the Dow Jones estimate of 5.5%, coming back from a brief but severe coronavirus recession in 2020. It was the best calendar-year growth rate since 1984.
• The Tata group formally took over Air India on January 27th, 67 years after the group founded the airline in 1932.
• The foreign institutional investors (FII) continued to be sellers and sold equities worth Rs 202,640 mn. Domestic institutional investors (DIIs) continued to be buyers and bought equities worth Rs 77,600 mn.

Things to watch out for next week

• Market participants expect the Union Budget would not throw any surprises at investors, sticking to the expected narrative of fiscal restraint and growth as the fiscal deficit is expected to fall below pre-covid levels, and the government’s push for infrastructure capex and privatization. Analysts at Morgan Stanley anticipate the government will focus on gradual fiscal consolidation while driving public capex, fostering a favorable climate for private capex, and generating resources through selective divestments.
• Contrary to international investors, retail customers are entering the Union Budget with net long holdings on the Nifty 50’s February futures of 68,592 contracts.
• Markets will react to earnings reported by consumer companies like Marico and Britannia. Companies such as Tech Mahindra, Dabur, HDFC, Tata Motors, Cadila Healthcare, and Lupin are set to report earnings next week. The management commentary on price erosion in the US market will be key for pharma companies. Comments on raw material inflation and logistical challenges will be key for consumer companies.
• Capital goods, infrastructure, housing, real estate, public sector banks are likely to be in the spotlight ahead of the Budget.

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