Equities Likely To Remain Volatile And Range Bound In 2022
Equities remained volatile this week as FPI outflows continued and inflationary pressures prompted the RBI to implement a further hike of 50 basis points in benchmark rates, effectively signalling the end of the accommodative stance that had kept liquidity high as the economy battled the pandemic.
May-22 witnessed FPI outflows of US$ 5.17 bn. This was the thirst worst month of FPI flows since FPI investments were allowed to invest in India in 1991! DII’s came to the rescue with net purchases of US$ 6.57 bn, or else we may well have seen a deeper chasm opening up if the bottom fell through.
On the technical front, the bellwether index continued its clear downtrend that effectively began in October ’21, when the NIFTY came achingly close to breaching the 19K mark. Since then, we’ve seen sustained “lower highs”, first in January this year, then in April, and now in June. This is now the 9th month running in the current bearish wave, and it doesn’t look like stabilizing quite just yet.
It’s worth noting that FY2021-22 has been the first year in the last nine years where reported earnings of the NIFTY have been higher than predicted at the start of the year. Fundamentally speaking, it’s quite likely that the uptrend in corporate earnings will have legs for another 3-4 years, although inflation and geopolitical tensions may keep things choppy for a while.
In the short run, the lower Bollinger Band (15,800) will act as a support level. If the NIFTY stabilizes there, it could signal that the current 9+ month bearish wave is coming to a close. If it doesn’t, we could well see the index falling to 15,400 levels (July ’21 levels) or lower.
Investors should not chase short term returns at this point. Equities will remain volatile for the remainder of 2022, with a lot of push and pull factors in play. The next 6 months of the year represent an excellent opportunity for long term investors to accumulate equities through SIP’s and STP’s. Those who are able to accumulate patiently through the year will be well positioned to benefit when the tide reverses – which it invariably does.
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