Market Outlook – May 2022

Testing Time Ahead – Nifty gave up most of the gains, which it recovered in April-22, correcting from 18100 to 17000, down by 6%, on account of disappointing Q-4 numbers, geo-political tensions, rate hike by Fed, lockdown in China and rising inflation (as the main reasons for this fall).

Stagflation is now a real risk around the world, where the economic growth rate has become slow, unemployment is high, accompanied by high inflation. Central Bankers (apart from the US) are in dual mind whether to increase rates, or hold-up. We expect markets to be range bound for next 3-4 months and advice clients to accumulate gradually on every fall. Do not expect higher returns immediately and one can see some green shoots visible during the Diwali period or later.

Key Events – May 2022:

  • Fed meet on 4th May, 50 bps rate hike expected, with a commentary on the pace of further rate hikes crucial – Negative for the markets.
  • Russia to celebrate its annual Victory Day over Nazis on 9th May and likely to announce its further strategy on Ukraine War.
  • LIC IPO to start from 4th May, with an issue size of 21000 Cr, biggest ever IPO till date.

During FY22, FIIs sold ₹1.40 lakh crore in equities compared to the last year when it was a net buyer of ₹2.74 lakh crore. Meanwhile, DIIs were net buyers of ₹1.26 lakh crore in first eleven months of FY22 compared to net sale of ₹39,000 crore last year. Apparently, this is one of the worst outflows from India by FIIs in many years.

All this is because of the unexpected pandemic, that hit the country badly followed by another event that escalated inflation in the country – i.e., the Russia-Ukraine war — and most importantly because of monetary tightening in the US, which makes the US debt market more attractive to FIIs. And hence the huge sell-off.

Even after a challenging time since COVID-19 that triggered the sell-off by FIIs, markets do not seem to be intimidated by the selling spree of foreign investors as domestic institutional investors (DIIs) have come to the rescue like never before. The constant surge in systematic investment plan (SIP) inflows is among reasons markets have been offsetting most of the selling pressure from foreign investors as every market correction is seen as an investment opportunity.

Mushtaq Kazi
Mushtaq is the co-founder of Mushtaq has had corporate stints with Kotak Securities & IIFL group. He holds an MBA degree from Pune University.
His interests include cooking & gardening. When he is not cooking or gardening, he is writing.