Invest in Credit Risk Mutual Fund or not?

During the start of the week, Indian markets encountered increased volatility with VIX rising 16.22% while the US continued to hit fresh life-time highs. Actually, domestic benchmark indices registered its second-biggest single-day fall in 2021 with massive volumes. Unlike in the past, FPIs have diverted from their usual buying behaviour and have turned net sellers so far this month, as India struggles to cope with the increased pace of infections.

However, this correction can be construed as a healthy one ignited by fears of a second wave of COVID-19. Just when investors expected a resilient recovery in our economy, markets began to falter and showed hiccups due to vaccine issues and rising cases. Nevertheless, it is expected that once the vaccination drive starts in full-swing, things should come back in control. Investors are advised to look at corrections as an opportunity to rejig their portfolio and invest in quality companies.

An additional macro data which was negatively affected in the past week was the rupee that observed depreciation till levels of 75.5/USD, which was last seen in June’ 2020. This depreciation caused the rupee to deteriorate its position from one of the best performing currencies in Asia last quarter to the worst one now. The weakness was also intensified by unwinding of short dollar positions against the rupee. Further, with an aim to retain the 10-Year G-Sec yield within 6%, India’s central bank announced a gigantic Rs. 1 trillion bond purchase plan from the market which will only add to the current liquidity in the system and rising commodity prices too going ahead might lead to a current account deficit from the existing surplus situation. Cumulatively, these determinants are worrying participants dealing in the USD/INR pair. Currency traders are advised to remain vigilant until the existing headwinds subside.

Event of the Week

IT mammoths delivered moderate earnings with softer deals and modest growth in revenue and margins sequentially. Though the pandemic is known to accentuate a new tech up-cycle, some management commentaries mentioned that there is no room for additional margin expansion as travel costs and wage hikes make their way back into the sector. Most positives are already priced in the stock price which led to markets participants turning cautious on their growth leading to pressure on the stock. But from a wider perspective, there is a long runway of growth in IT companies and investors can continue to invest on every dip without any hesitation.

Technical Outlook

Nifty closed negative for the week however, it formed a hammer candlestick pattern just around channel support and at previous support. The level of 14,250 has now become a make or break level for the index. Any break below the current support will trigger a bearish sentiment across the broader markets while other global and emerging market indices are trading at all-time highs. We suggest traders maintain a cautiously bullish bias on the index and initiate long positions around the support by maintaining a strict stop loss just below the support. Resistance on the higher side is now placed at 14,900.

Expectations of the Week

With major Indian cities facing partial lockdowns, markets may continue to remain unstable at least till the uncertainty on the rising cases front subsides. Market participants must not read much into India Inc.’s numbers and should give utmost importance to the management commentary in order to gauge future growth prospects amidst the second wave. Further, any correction may turn out to be a blessing in disguise for the ones who felt left out in the past rally. We advise market participants to keep their shopping cart ready to go in for resilient stocks from the pharma, IT, FMCG sectors in a phased manner. Nifty50 closed the week at 14617.85, down by 1.46%.

(The writer is Head-Equity Research, Samco Securities, views expressed are personal)