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Market Musings Week 5

Oh, what a week it has been...from a 7% correction to 10% upside this week. Predicting short term moves are quite difficult. BSE Sensex closed above 50K for the first time this week. The first trigger came from the Budget and better than expected corporate results and RBI stance added fuel to the rally.

The market rally till now has been in a very narrow band primarily focused on large caps but a more broad-based move was seen this past week. Midcaps went up by 7% and Small caps by 6% as well with the BankNifty alone rallying by 15%. Top tech companies beat earnings forecasts, automakers made a comeback, top Pharma companies beat expectations and banks did very well with SBI rising 39% in just one week. The RBI has kept the repo rate and reverse repo rate unchanged and retained the accommodative stance.

What does it mean to investors?

Timing the markets are very difficult and these two weeks exemplify this! While markets remain at elevated levels compared to history, the budget has provided much-needed fuel that could sustain the momentum.

  1. Sector rotation into beaten-down sectors such as Infrastructure could help propel a broad-based growth.

  2. The absence of Open Market Operations (OMO) disappointed Debt fund managers. Debt fund returns are expected to be tempered and it is advisable to invest short duration funds.

Is everything so good?

Not really. After all, we are slowly coming out of recession and while COVID numbers are low, we are not out fully. While corporate results have been good, this needs to continue. There is the imminent threat of inflation given the spending and consumption with lower interest rates in addition to potential business disruptions from the ongoing farmers' protest.

Also, we need to remember that the Budget is just intent and there remains the key work of - EXECUTION!!

Markets are always discounting the future and the trickle-down effect of the budget, if implemented, will lead to sustained economic growth and this is what the market is lauding!! The longer-term prospects remain positive for Indian markets and investors will do well to keep their eye on their asset allocation and not worry about short term noise!!

Source: Moneycontrol, Mint

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