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Market reverses losses to trade higher; here are 5 factors aiding sentiment

The Ukraine war and the crude spike are no longer a big factor but high US inflation and Fed tightening will be the two major headwinds in 2022, says VK Vijayakumar of Geojit Financial Services

March 28, 2022 / 02:16 PM IST

Indian markets reversed the morning’s losses and were trading marginally higher in the afternoon on March 28, led by gains in banking and auto firms.

The Sensex and the Nifty dropped over 500 points and 150 points in the early trade but at 1.30 pm, the Sensex was up 0.3 percent, or 148 points, at 57,474, while the Nifty was trading 0.20 percent, or 30 points, higher at 17,167.

"Even though the Ukraine war and the consequent crude spike impacted markets initially, the war is not impacting markets much now,” said Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Major headwinds for the market in 2022 would continue to be the high rate of inflation in the US and tightening by the Federal Reserve, he said. It appears that markets have priced in around 190 bp hike by the Fed in 2022.

The fact that markets continue to be resilient in spite many headwinds is a reflection of the strength of the bull market.

“DIIs (domestic institutional investors) and retail investors now exert more influence on the market than FPIs. Domestic investors emerging as a major counterforce to the fair-weather FPIs is a desirable development,” he said.

Retail investors, however, should be more vigilant in their investment by avoiding low-grade stocks and investing in high-quality stocks, Vijayakumar said.

Here are some key factors supporting the market:

1 Resumption of international travel

On March 27, India resumed international flights after two years. Falling Covid infections have allowed Covid curbs to be relaxed, which will boost domestic travel as well as the hospitality industry.

The resumption of international flights is expected to give a boost to Indian carriers, which are adding capacity as more people take to the skies. As the May-June vacation season arrives, domestic airlines are expecting a busy season ahead.

Coronavirus-hit stocks like airlines, retail and hospitality were trading higher after stagnating for almost two years as investors expect a rebound in their fortunes.

2 RBI support

The Reserve Bank of India continues to be supportive of economic growth, governor Shaktikanta Das said on March 28, signalling above-target inflation is not as much of a threat to India.

Das said the RBI would ensure ample liquidity to support the recovery, saying that a premature tightening of the monetary policy would prove counter-productive to demand.

3 Russian foreign minister in India

Russian foreign minister Sergei Lavrov is due in New Delhi this week, media reports said. Russian and Indian officials are expected to discuss the sale of Russian oil to India and to work on a rupee-ruble denominated payment method that could operate outside the SWIFT messaging system, The Hindu reported.

Russia has been barred from the SWIFT system as part of the sweeping sanctions imposed by the US and its allies against Moscow for its invasion of Ukraine.

Russian oil will come in handy for India, which meets 85 percent of its crude demand through imports, as oil prices continue to hover above $100 a barrel.

4 Russia-Ukraine talks 

Market participants are also keeping a close watch on the evolving Russia-Ukraine situation. The two sides are expected to open another round of talks in Turkey from March 28 as the war has entered its second month.

5 Expected data boost

PMI manufacturing and services index and auto monthly data will begin coming in from April 1. In February, PMI data showed Indian factories and service providers gained momentum as easing curbs saw demand return. The composite index climbed half a notch to 53.5. The auto sales numbers for February, too, were an improvement on January. The fiscal deficit and eight infrastructure industries data will be announced on March 31.

(Bloomberg contributed this story) 
Moneycontrol News
first published: Mar 28, 2022 02:16 pm