Mr Mitul Shah, Head Of Research at Reliance Securities.
Domestic equities closed lower following weak global cues with Nifty falling by 1%. The broader market outperformed main indices with Nifty Midcap and SmallCap index was largely flat. Mix action seen on sectoral front. Nifty IT declined the most at 2.1%, followed by Nifty Fin Serve (-1%) and Nifty FMCG (-0.94%). On positive front, Nifty PSU bank gained 2.2% followed by NIfty Media (+1%) Metal (+0.8%) and Auto (+0.7%).
US equities closed sharply lower as tech sector fell due to climbing Treasury yields and investors began digesting a busy week for company earnings. The Dow Jones dropped 1.5%, S&P 500 declined 1.8%, while the Nasdaq sank 2.6%. The Treasury yields rose in anticipation of the Federal Reserve tightening monetary policy this year. The yield on the benchmark 10-year Treasury note rose 9 basis points to 1.86%, the highest level since the start of the pandemic. As the Federal Reserve aggressively moves to counteract the surge in inflation, investors have started selling bonds, which consequently pushes yields higher.
India appears to be better-placed in terms of handling COVID compared to other countries throughout the pandemic, be it the first wave, second wave, Delta variant or the ongoing Omicron on the basis of which we expect fastest revival from the current slowdown along with similar strong bounce-back in the market. In past we have observed that volatility in market persists till the announcement of first rate hike by Fed, post that it settles down and flow in equities resumes. Equities would continue the outperformance with double-digit returns. Our year-end 2022 target for Nifty is 20,000 at 22x FY24E earnings. We expect Nifty to enjoy premium valuation for the next 1-2 years on the back of higher earnings CAGR (before reaching stable earnings pace of growth), as India becomes a preferred destination for global manufacturing, going ahead. Sectors like IT Services, Engineering, Capital Goods and EV ecology would continue to be in focus in 2022. Automobile is also another promising sector on the back of likely demand revival, better supply and commodity softening.