Equities kickstarted the 2022 on a strong note amid a holiday-thinned volume as few markets in the other Asian region were closed.
Markets in mainland China and Japan were closed on Monday for a holiday. Hong Kong’s Hang Seng index closed 0.53% lower while South Korea’s Kospi gained 0.37%.
On Monday, the BSE Sensex was up 929.40 points or 1.60% ending at 59,183.22. The Nifty gained 271.65 points or 1.57% at 17,625.70. These gains were the best of any first trading day in 13 years. It was during the first trading session of 2009 that both the Sensex and Nifty rose around 2.3-3% each.
According to Gaurav Dua, head-capital market strategy, Sharekhan by BNP Paribas, the strong upsurge of benchmark indices is not driven by global cues as Asian markets were quite sombre today.
“Notwithstanding the recent volatility and the surge in active cases indicating start of a new wave of pandemic, the equity markets seem to be in a cheerful mood on the first day of the year 2022. The rally today is led by banking and financial services stocks which have a high weightage in the benchmark indices and finally seem to be breaking out of a long phase of underperformance,” Due said.
Dua continues to remain positive on equities in 2022 and feels it could be a year of underperforming sectors like public sector banks, mortgage companies and auto and auto-ancillaries, etc., play catch up as smart money shifts to stocks with relatively more attractive valuations.
However, concerns around uncertainties and partial mobility restrictions imposed in few states continue to linger on investors’ mind. The restrictions could derail the recovery in contact-intensive services in first quarter, but global experience suggests a smaller impact than previous waves and a swift growth rebound once cases peak.
While Omicron may be a milder strain with only 1% hospitalisation expected, but if it infects a much larger population, it may still put the medical system under severe strain, which means partial lockdowns cannot be ruled out.
According to Gautam Duggad, head of research-institutional equities, Motilal Oswal Financial Services Ltd one needs to watch out for the trend and reactions of both the state and central governments in the next few weeks as third wave of covid emerges.
“While 2021 was all about growth and recovery from the low base of 2020, the focus of central bankers across the world has shifted towards inflation and monetary policy normalization post the pandemic given the context of US Fed Tapering and potential hardening of interest rates in 2022. Given the rich valuations, the corporate earnings delivery therefore becomes even more crucial. We note that FY22 and FY23 earnings estimates of Nifty have been stable despite several headwinds,” Duggad said.
In 2021, markets rallied driven by the decline in covid cases in second half of the year, a significant pick up in the pace of vaccination, and the consequent sharp revival in economic activity. However, the detection of Omicron in South Africa and its gradual spread to several other countered coupled with possibility of interest rate hikes ahead led to a 1.5% quarter-on-quarter decline in Nifty in fourth quarter of 2021.
“While we are happy with the tapering (US Federal Reserve’s) as it will arrest the asset bubble, but three rate hikes might be too early too fast given the new lockdowns around Omicron and might impact the recovery. Stock markets at the moment seems to have taken it in its stride accelerated tapering and interest rate hike cycle onset in US and are hitting newer highs. But as the impact of reduced liquidity starts impacting we believe some sell off is in order,” said Centrum Broking in a note on 3 January.