Relief for battered benchmark indices: Four-week losing run snapped

The domestic stock markets snapped their four-week losing streak, managing to eke out a two per cent gain to cap a tumultuous seven days that saw share prices swing wildly.
 

Stability in commodity prices and a strong showing by the ruling Bharatiya Janata Party (BJP) in the state polls improved investor sentiment, helping benchmark indices post four consecutive days of gains. The Sensex ended at 55,550 on Friday, while the Nifty closed at 16,630 — a minor change over the previous day’s close, but up over 2.2 per cent for the week.
 

The Sensex swung nearly 4,000 points, or 7.6 per cent during the week —touching an intra-day low of 52,261 on Tuesday and a high of 56,242 on Thursday. The Nifty50 index saw a 1,000-point swing between 15,748 and 16,757 during the week.
 

At the beginning of the week, benchmark indices plunged to their lowest levels since July as oil prices soared to nearly $140 a barrel, a 14-year high. The relentless rally in oil and other commodities spooked investors and stoked fears of stagflation. The markets, however, managed to rebound as investors judged the losses as excessive and pinned hopes on stimulus packages from central banks to offset the fallout of the Russian invasion of Ukraine.
 

“The BJP’s comfortable victory in UP with two-thirds majority and retention of power in Uttarakhand (two-thirds majority), Manipur (simple majority), and Goa (won 50 per cent of seats) will mean continued political stability, policy and reform momentum as well as fading of risks associated with political uncertainty in an already volatile and uncertain market context,” said Gautam Duggad, head of research - institutional equities, Motilal Oswal Financial Services.
 

He, however, expects the market to remain volatile in the near term because of the Russia-Ukraine conflict, the expected interest rate hike by the US Federal Reserve, elevated crude oil prices, and the Reserve Bank of India’s (RBI’s) response to rising inflationary pressures
 

“We expect markets to stay volatile until the headwinds subside. Valuations though at a P/E about 19 times FY23E earnings for Nifty look relatively more reasonable,” Duggad said.  
 

Experts said easing of tensions between Russia and Ukraine would boost sentiment, helping the market consolidate at current levels. Most European markets rose sharply on Friday on hopes of progress in ceasefire talks. Investors, however, kept their positions light ahead of key meetings of the US Fed and Bank of England (BoE) next week.
 

“After the strong recovery during the week, the domestic market turned cautious on Friday, as focus shifted to issues like inflation, BoE and US Fed policy,” said Vinod Nair, Head of Research at Geojit Financial Services.
 

“US CPI inflation recorded a 40-year high due to high gasoline, food and housing cost, adding doubts to global trend. Inflation levels in India and abroad are poised to rise even higher in March, though on a temporary basis, considering the impact of the Russia-Ukraine issue. However, if developments go well like diplomatic progress on war, revert of commodity price and in-line rate hike decision, stock market trend should be stable and healthy as recent negative factors are largely factored in the price correction,” Nair said.
 

Earlier in the week, Morgan Stanley revised downwards its earnings growth estimates and target price for the benchmark Sensex. It expects the Sensex earnings per share to grow 17.7 per cent to Rs 2,467 in FY23. It had earlier projected growth of 28.7 per cent to Rs 2,681. The December 2022 Sensex target has been cut to 62,000 from 70,000 earlier.