scorecardresearchSensex, Nifty eye all-time highs; is the worst behind for the market?

Sensex, Nifty eye all-time highs; is the worst behind for the market?

Updated: 12 Nov 2022, 10:17 AM IST
TL;DR.
The last one year has been tough for the market. The Ukraine war, inflation, aggressive rate hikes and the fear of a looming recession shattered market sentiment.
The domestic market may have some comfort from foreign investors.

The domestic market may have some comfort from foreign investors.

Take a look at this plain fact- Sensex is just 450 points away from its all-time high of 62,245.43 which it hit on October 19, 2021.

On November 11, the equity benchmark hit its 52-week high of 61,840.97; it ended at 61,795.04 with a gain of 1,181 points or 1.95%.

The last one year has been tough for the market. The Ukraine war, inflation, aggressive rate hikes and the fear of a looming recession shattered market sentiment. The era of the liquidity-driven rally ended as major central banks rushed to lift key lending rates to bring inflation down from multi-year high levels.

Now, there appears to be some hope. The US consumer prices rose less than expected in October. Let's understand why this is important.

Inflation has been at multi-year high levels in many economies. This forced global central banks to lift rates rather aggressively which raised the risk of a sticky recession. Since the market discounts the near future, investors started selling riskier equities and buying safe-haven assets.

In simple terms, inflation triggers rate hikes and rate hikes may cause a recession. If inflation eases, the pace of rate hikes will ease and eventually the risk of recession will ease too.

So, if we assume that inflation in the US has peaked, can we say that the worst is behind us?

It is too early to say so. The US inflation prints in the US came below expectations but it is still above the Fed's target.

"It appears that the worst is behind us, but it is too early to celebrate. But it is important to appreciate the fact that US inflation is still too high and much above the Fed's target. So, there is no room for too much optimism, particularly since the markets have run up sharply. The Nifty is now trading at above 22 times FY23 earnings, which is on the higher side," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

The domestic market may have some comfort from foreign investors.

"In the near term, the market is likely to remain bullish aided by FII buying, which in turn, will be triggered by the falling dollar and US bond yields," said Vijayakumar.

The market still has a lot of headwinds to deal with. The biggest ones are geopolitical tensions and soaring inflation.

Unless there are substantial signs that these issues are behind us, the market may remain on a bumpy track.

Besides, amid all claims that India is a shining spot amid the global gloom, as per a Mint report, rating agency Moody's Investors Service on November 11 cut India’s economic growth forecast for 2022 to 7%, from 7.7% estimated earlier.

Moody's flagged higher inflation, monetary policy tightening, uneven distribution of monsoon, and slowing global growth as the major reasons which could hit India's growth.

Moody's also lowered the growth forecast for 2023 to 4.8% from the 5.2% estimated earlier. Following the deceleration, the agency expects India's economic growth to recover to 6.4% in 2024, reported Mint.

The long-term outlook for the domestic market is bright but in the near term, the market is expected to remain volatile.

"We are positive on Indian equities from a mid to long-term perspective, although intermittent volatility cannot be ruled out on account of global uncertainties," said Hemang Jani, Head of Equity Strategy, Broking and Distribution, Motilal Oswal Financial Services.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of MintGenie.

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First Published: 12 Nov 2022, 10:17 AM IST