At the same time, the largest central bank, the US Fed, is looking to retire the word ‘transitory’ indicating that inflation is here to stay. In fact, countries like New Zealand and South Korea have already hiked their interest rates. Others such as Great Britain, Russia are expected to follow suit as several central banks are increasingly recognising inflation as a key risk and are therefore announcing policy measures to contain it. But looks like India will remain a backbencher on this front and may look at upcoming policies to set a defined roadmap for future rate hikes.
But why is RBI still biased towards growth and not seeing high inflation trends at least in the current fiscal? The answer is uneven growth recovery! While the GDP numbers do seem encouraging, private consumption accounting for over 60% of our GDP, remains 3% below the pre-pandemic levels. Further, the unorganized sector is still battling the pandemic blues and is under-represented in the GDP numbers. Many post-earnings management commentaries, especially from the FMCG sector, emphasized that rural demand is losing steam. And while we can rejoice that GDP numbers are mildly above pre-pandemic levels, we are still far behind what our growth would have been had the pandemic not occurred. Taking cognizance of these factors, and the potential threat posed by Omicron, it seems that MPC’s best option currently was to continue supporting the broader economy. However, for how long can inflation take a backseat in RBI’s strategy, only time will tell.
Event of the week
Insurance numbers for the last month indicate that premiums have seen a pick-up in growth over several months, with private insurers continuing to drive industry growth. A slight increase in the number of policies sold on a YoY basis was observed in the life insurance industry and new business premium collections increased by 41.85%. Life insurers had taken a deep dent on their bottom line due to the surging claims, higher premiums demanded by reinsurers and tightening of underwriting norms earlier in the year. However, the pressure on the margins is expected to bottom outgoing forward given that the pandemic has significantly shifted the perception towards insurance. Additionally, under penetration of insurance as a percentage of our GDP also promises strong headroom for growth which can be capitalized by investors.
Technical Outlook
Nifty 50 closed positive for the second week after witnessing a bounce from the demand zone around 17,000. The index is facing resistance around 17,550 and is currently trading around its 20-DMA. The last two trading sessions of the week exhibited indecisiveness and Nifty50 continues to trade below the major rising trend line. Similarly, Bank Nifty is also struggling to surpass its resistance at 37,440. All these pieces of evidence hint at limited upside in the short term. Traders are therefore advised to maintain a neutral to mild bearish outlook till Nifty holds its ground above 17,550 levels.
Expectation for the week
Domestic inflation figures and the FOMC meeting will be key macros to primarily dominate Indian benchmark indices. Since no guidance was provided by the RBI on the rate hike calendar, all eyes will be on FOMC’s stance on tapering and interest rate hike trajectory. While it is widely expected that FED would take the intensity of the Omicron variant into account before aggressively preponing tapering plans, any surprises in the announcements can cause choppy movements. Hence investors should remain cautious and consider value investing till markets continue to let off steam from excess valuations.
Nifty50 closed the week at 17.511.30, up by 1.83%.