Just as equities are the talk of town, another asset class zoomed above $40,000 for the first time this week. The rally in Bitcoin has been giving all market participants FOMO (fear of missing out), but this surreal jump in cryptocurrencies does signal that our world is heading towards a major inflationary price increase across real (tangible) assets.
It is probable that down the line, as inflation rises, people’s liquid assets will start eroding value and there will be a decline in purchasing power, and hence, there is a need for alternative real assets such as the Bitcoin. The phenomena of inflationary tendencies kicking in and eroding purchasing power could last 3-5 years. In this period, one can look to generate disproportionate returns by investing in companies that focus on metals and mining, industrial, cement and real estate.
The current consensus continues to bet on FMCG, pharma and IT performing well in the future, but it may not hold good if such inflationary tendencies gain traction. If the movement in Bitcoin is any precursor for equity markets, then one may see a massive rally in metals, mining and real estate stocks. With an uncertain event such as the pandemic disrupting many businesses, some traditional principles of investing are now certainly demanding a relook.
After long years of underperformance, cyclical, industrial and capital-intensive industries may come out winners over the next few years. Investors are, therefore, advised to bet on these themes in the equity market.
Event of the Week
Bank Nifty is trading close to its lifetime high, and it was buzzing this week on Q3 business updates from different private sector lenders. With the opening of major cities and our economy getting on to the path to recovery, banks are making headways to regain operations just like the pre-Covid days.
HDFC Bank reported a deposit growth of 19.10 per cent, but the weakest advance growth of 15.60 per cent in 16 quarters. Given the moderation in loan growth in this bellwether banking player, it would be safe to say that this sector is yet to reach its peak in terms of business growth, which is a positive sign for investors, as any dip in these stocks could offer good opportunities to buy into these financials.
Technical Outlook
Nifty50 closed the week on a positive note, as the market remained unaffected in the short term and continued to surge. Almost all sectoral indices closed in the green for the week, except for FMCG, while metals, IT and media continued to lead. Nifty now seems to be heading towards the 14,500 level, in the absence of any significant negative trigger. On the downside, the 13,950 level has been established as the immediate support and a breach of the same may trigger profit booking in the short term.
The market continues to be overbought in the short term and we maintain a cautiously bullish outlook unless Nifty breaks below 13,950 level.
Expectations for the Week
Going ahead, the domestic bourses will be bombarded with quarterly earnings numbers from India Inc., starting with major IT players. While a good show is expected from most of the sectors, market participants should be wary as stock prices running up too much, as most of the positives have already been discounted in the price. A decent strategy for traders would be to wait and watch for the market’s reaction to the earnings and then see the momentum to judge the trade.
Investors are advised to stay put and look for opportunities to increase weightage in quality names from the metals and mining, industrials, cement and real estate sectors. Nifty50 closed the week at 14,347, up 2.3 per cent.