Post Market views - Jan 27, 2022 - Reliance Securities

Mr Mitul Shah, Head Of Research at Reliance Securities.

Domestic equities witnessed a setback after FED's recent announcement for interest rate hikes. Nifty fell 1% while broader market underperformed compared to the main indices with Nifty Midcap and SmallCap falling by more than 1%. However, most sectoral indices ended higher except Nifty FMCG, Nifty IT, Nifty Pharma, Nifty Metal and Nifty Reality. Nifty PSU Bank gained the most at 5.18%, followed by Nifty Bank (+0.97%) and Nifty Pvt Banks (+0.74%). US equities ended mixed following the Federal Reserve's monetary policy decision, in which the central bank affirmed market expectations that it was nearing the start of interest rate hikes as the economic recovery progressed and inflation remained high. However, the Fed offered little in the way of concrete details about the timing and speed of its balance sheet reduction process. The S&P 500 lost 0.15%, pulling back after rising by more than 2% at session highs. The Dow jones fell 0.38% while, Nasdaq cut gains after rising by more than 3% at the day's highs and ended just slightly in the green. The benchmark U.S. 10-year yield climbed to 1.8709% shortly after the Fed statement.

As the Budget Day coming closer, the markets are busy doing all sorts of permutations and combinations to get the big picture right. Corporate earnings, of course, will also have a bearing on the scheme of things. The earnings season has gathered pace with revenue is largely in-line with estimates, however higher commodity prices taking toll on margin and profitability to some extent. 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 with 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. This trend would continue over the next 4-5 years, supported by China+1 policy and the government's support for various industries. We believe that an all-round calibrated economic recovery is on the cards, though the timing remains highly uncertain. 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. Recently rising Covid cases in India is of concern now and how it would shape up in coming days would key deciding factor for market trend in the month. We would be monitoring situation on recent Covid surge and Omicron issue.

Source : Equity Bulls

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