US stimulus, Q3 earnings, covid vaccination to steer stocks

Foreign liquidity, which is driving the strong rally in Indian markets, may get a further boost by the additional fiscal stimulus of $1.9 lakh crore in the US and the Federal Reserve’s indication that there may not be interest rate hikes soon.

Markets have made record rallies since the pandemic. This has come on the back of record foreign institutional capital support as global central banks adapted an ultra-loose monetary policy stance, pumping money into economies worldwide to combat disruptions.

“We believe the announcement of a higher fiscal stimulus in the US and the soft stance of global central bankers about their monetary policies along with a weak dollar will continue to attract foreign institutional investors (FIIs) to Indian equities,” Binod Modi, head strategy, Reliance Securities, said.

Q3 earnings have so far been firm and are likely to remain strong, which along with vaccination drive, should offer support to equities, Modi added. “The budget will be crucial for the market as it will offer clarity about the sustainability of the rebound. Nifty is trading at a high premium and stocks are trading ahead of their fundamentals. Hence, investors must be cautious at these levels.”

US president-elect Joe Biden outlined a $1.9 trillion stimulus package proposal on Thursday, saying bold investment was needed to jump-start the economy. FIIs invested $23.37 billion in Indian shares in 2020 and another $2.44 billion so far in January. Domestic institutional investors (DIIs) were net sellers worth ₹12,323.3 crore in January after selling shares worth ₹34,966.38 crore last year.

Morgan Stanley has also raised MSCI Emerging Markets index target to 1330 from 1250 by 2021 end on Democrats taking control of the US Senate.