The month of November 2021 ended with Nifty 50 Index closing below the important level of 17000. The correction started 4 weeks back after the index touched 18600. It has continued with the recent advent of Omicron, a Covid variant with 32 mutations.
For the medium term, I maintain my medium term bullish view on the Indian equity market. I had written about multiple elements in my article of January 5, 2021 – ‘Confluence of Factors and a big opportunity for India’ and those have materialized effectively and the market moved up significantly from 14000 to 18600. The momentum is expected to continue and the new Indian economic cycle can last for a few years.
Monetary policy remains accommodative and is accompanied by a strong governmental infrastructure push. There is good housing revival and that is a major catalyst for economy because of so many connected industries. The broader capex upturn is expected to follow over the next 4-6 quarters. Additionally, corporate profitability is improving significantly and increasing digitization is very beneficial.
However, Omicron is the most important factor right now in the short term. Because of its multiple mutations, there exists an important debate on vaccine efficacy and it will still take a few days to settle it according to a New York Times report. Stephane Bancel, CEO of Moderna, the US drug maker whose Covid vaccine is widely used around the world, cast doubt on the efficacy of existing vaccines. Dr Shahid Jameel, eminent virologist, feels that a very large number of Indians are likely to remain protected and there is no need to panic. He says that the latest sero surveys show Delhi with 97% antibody protection and Mumbai around 85-90%. His view is that vaccine effectiveness may dip only by a few points.
Turning to the impact on portfolio management, the existing long term equity positions should continue and there should not be any selling and that is because of our strong medium term bullish view. However, for the fresh long term money, it will be good to adopt a tranche approach, where we can buy in 2-3 instalments, depending on the quantum of investment. That is because a volatile move in either direction is possible. If the mutant turns out to be vaccine resistant, that will be negative for the market, otherwise, there could be a relief rally. 1st tranche therefore could be bought at the present level since it is attractive with a medium term horizon and we should not be left out if there is a sudden up move. On the other hand, we should not buy in full since the market can go down further if Omicron turns out to be vaccine-resistant. The next tranche could be bought at either the level of 17350 or 16600 whichever comes first since 17350 is a good resistance level while 16600 and 16000 are good supports. For the 3rd tranche, we will have more information, as the events unfold during the next few days and a considered decision could be taken accordingly.
Overall, existing equity positions should be retained because of medium term bullish view while there could be careful buying in tranches because of the present uncertainty surrounding Omicron.
