Indian markets ended in the green for a second consecutive week though there were visible signs of profit booking. The midcap and small-caps ended higher than Nifty, which is good news as it shows rotation and also a play on the Govt. Capex spend! Clearly, the market is focused on growth and as I have been writing, the market rally will continue to be led by earnings recovery.
Most experts believe that Financials will do well coupled with the stocks from industrials, manufacturing, cement, and real estate.
Let's look at 2 external factors that will be key - Crude & Inflation
Brent Crude crossed US$ 60 a barrel with India and China consuming oil close to pre-Covid levels. How long will the oil price rally last? The first test of the rally will be in early March when the OPEC+ nations meet to decide on the future production trajectory.
Other than India and China, most other economies have still a long way to go and the demand side is NOT looking good. The current oil price rise is a short-term blip and can come down sooner than later. The key data to look at are cues on future prices in oil contracts.
Inflation is always a key one to watch; after all, if it rises, central banks will be forced to raise rates, which usually rings the death of equity bull runs!! For now, Inflation is benign be it in the USA, Euro or even in China. Back home, our consumer price inflation came in at 4.06% about 50 bps lower than that in December.
It is great too, at last, see an Indian PM talk about the need for reforms. The PM, in his speech in the Lok Sabha, spoke about the necessity for the new farm laws, about the need to shrink the state's role in running companies and the need for wealth-creating private sectors in helping India develop!! This is a big shift in our political discourse - after all even during our first wave of liberalisation, it was done very apologetically!! Government after governments have focused on populism more than pushing reforms.
Maybe, perhaps maybe, this is shifting!! Yes, implementing reforms isn't easy but it is still great news that we have a PM and its govt who seem to be supporting Growth!!