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Equities heralded the new year on a robust note amid holiday-thinned trading. Indian stocks rose 1.6% on Monday, making it the best gain of the first trading day in 13 years. The is the biggest increase since 2009 when Sensex gained 2.6% and Nifty 2.5%.

On Monday, the BSE Sensex rose 929.40 points, or 1.6%, to 59,183.22. The National Stock Exchange’s Nifty index gained 1.57% to 17,625.70.

Markets in mainland China and Japan were closed on Monday for a holiday. Hong Kong’s Hang Seng index closed 0.53% lower while South Korea’s Kospi gained 0.37%.

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Global cues did not drive the surge in the benchmark indices as Asian markets were sombre, said Gaurav Dua, head-capital market strategy, Sharekhan by BNP Paribas. “Notwithstanding the recent volatility and surge in active (covid) cases indicating the start of a new wave of the pandemic, the equity markets seem to be in a cheerful mood on the first day of the year 2022. The rally today was led by banking and financial services stocks, which have a high weightage in the benchmark indices and finally seem to be breaking out of a long phase of underperformance," Dua said.

Dua remains positive on equities and feels that it could be a year of underperforming sectors like public sector banks, mortgage companies and automobiles and auto ancillaries playing catch-up as smart money shifts to stocks with relatively attractive stocks valuations. However, concerns around partial mobility curbs imposed in a few states linger on investors’ minds. The curbs could derail the recovery in contact-intensive services in the first quarter, but global experience suggests a more negligible impact than in the previous waves, and a swift growth rebound once cases peak.

While Omicron may be a milder strain, with only 1% hospitalization expected, if it infects a much larger population, it may put the health care system under severe strain, which means partial lockdowns cannot be ruled out.

According to Gautam Duggad, head of research-institutional equities, Motilal Oswal Financial Services Ltd, one needs to watch out for the trend and reactions of both states and Centre in the next few weeks amid the third wave of infections. “While 2021 was all about growth and recovery from the low base of 2020, the focus of central bankers across the world has shifted towards inflation and monetary policy normalization, given the context of US Fed tapering and potential hardening of interest rates in 2022. Given the rich valuations, corporate earnings delivery becomes even more crucial. We note that FY22 and FY23 earnings estimates of Nifty have been stable despite several headwinds," Duggad said.

In 2021, markets rallied, driven by the decline in covid cases in the second half of the year, a significant pick-up in the pace of vaccination, and the consequent sharp revival in economic activity. However, the emergence of Omicron and its swift spread, coupled with the possibility of interest rate hikes ahead, led to a 1.5% quarter-on-quarter decline in Nifty in the fourth quarter. 


“While we are happy with the tapering (US Federal Reserve’s), as it will arrest the asset bubble, three rate hikes might be too early too fast given the new lockdowns around Omicron and might impact recovery. The stock market at the moment seems to have taken it in its stride despite accelerated tapering and interest-rate-hike cycle onset in the US and are hitting newer highs. But as the impact of reduced liquidity starts impacting, we believe some sell-off is in order," Centrum Broking said in a note on Monday.

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