FALLING MARKETS - WORRIED?

Listless with a downward bias – that, in short is how the market is today.

The blame is fair and square on the new Omicron virus – as its infection spreads, so does the panic. The fear of lockdown and restrictions are so high that any news on virus causes a lot of anxiety. Well, there will be restrictions if the virus spreads but lockdown, nope. Some travel restrictions and many events going back to ‘online’ mode has caused anxiety, especially now when the economy is showing signs of a recovery.

Dr.Fauci yesterday night said that early indications suggest it may be less dangerous than Delta. We don’t know for sure yet but as now, at least that is what data suggests. Yet, the fear+cautious factor is predominant on the Street.

The other fear is that of Powell fast-forwarding the taper. The taper itself is not the overhang but the fear is over the rate hike coming in after this taper and that will most certainly be a factor to contend with. When rates in USA go up, FIIs prefer to put their money back in USA and that means selling does happen; typically when rates are hiked in USA, our rupee depreciates more than appreciate and that is directly linked to the FIIs selling – demand for rupee as they convert their dollars. As of now, at least till April 2022, rate hike in USA might not come in.

For us in the Indian markets, the RBI rate decision on 8^th is an overhang too. This time, there are equal number of voices saying that it will be a status quo, given the threat from Omicron while equal batting for a reverse repo hike as the economy is showing signs of growth and resilience. Given the rate of inflation, the actual cost of living incurred by people, economic sense says that rates should be hiked. But legislative elections round-the-corner, we need to see if politics dictates or logic.

We need to understand that the world is learning to live in this uncertainty; the virus will keep on mutating and we will continue to have new threats. Vaccinations might need to be followed with booster shots. Thus uncertainty and volatility are here to stay and the RBI needs to do what is right for the economy and not doing what is ‘expected’. Inflation, if not tamed now, will drown us.

This week, we will see the new listing of Star Health, the ‘Jhunjhunwala’ stock. The IPO somehow limped to closure with QIBs being the knight in shining armor. It will be interesting to see how it fares on listing. This though will have no direct impact on the markets.

We could be seeing short term volatility but believe that the long term story of India is strong – we need only pointer to this fact – Maruti said that it is sitting on a backlog of 2.5 lakh orders; demand is huge but due waiting period is as long as six months due to the semi-conductor chip shortage. Now isn’t that something!