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At the start of 2022, corporate chief executives and market analysts across the world agreed it would be a year of volatility. Market movements in early days bear out this forecast. After a calm start to 2022, the Chicago Board Options Exchanges Volatility Index (CBOE VIX) saw a sharp rise in the last trading session. Of course, it is still lower than the high scaled in December.
Investor sentiment in Indian equity markets is playing out in a similar fashion. Indices opened weak on Thursday, snapping the rising trend since the start of the new year. India VIX was up 5 per cent (12 noon on 6thJan), after jumping 7 per cent on Wednesday.
What does the rising VIX tell us? The rising VIX, which is often referred to as the ‘fear gauge’ is an indication of higher volatility expected in markets in the near term.
To be sure, there is enough reason for markets to be jittery. The minutes of the Fed meeting released on Wednesday confirmed the hawkish stance, with the members worried about the pace of inflation, a tight job market and global supply bottlenecks that are likely to continue into 2022. All these factors suggest that policy normalisation efforts and rate hikes in the US will pan out faster than expected.
Similar fears have crept into domestic investors’ minds too. Confidence about economic recovery, in spite of the looming threat from the Omicron variant of coronavirus, could wane as cases are rising rapidly. India’s manufacturing PMI for December, at 55.5 was at a three-month low, although it showed some expansion in business activity. Services PMI moderated too, with risks from Omicron expected to have an adverse impact.
Of course, the only hope is that government spending, particularly on infrastructure that could sustain growth in other core sectors such as cement, steel and transport, continues unabated. The question is: Does the government have enough resources to do so, given the unending spate of virus infections, lockdowns and the need for health care and social measures? Read Manas Chakravarty’s analysis here.
The next few weeks could see more volatility, at least on the home turf, what with corporate results for the December quarter unfolding, the Union Budget around the corner and uncertainty about the impact of Omicron on economic activity.
Some interesting insights from our research team
Sona BLW Precision Forgings: A proxy to ride growth in the EV space
Laurus Labs: Pick-up in fermentation opportunity a key watch
What else are we reading today?
Tyre makers' capex underscores robust demand
The Eastern Window: How China’s military used the pandemic to expand global footprint
AI will be more deeply embedded in the BFSI industry in 2022
China economy: the fallout from the Evergrande crisis (republished from FT, exclusive to MC Pro subscribers)
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Picks from our technical analysts
L&T, Canara Bank, ONGC, Century Ply (These are published every trading day before markets open)
Vatsala Kamat
Moneycontrol Pro
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