Pre-Market views - April 7, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: Arizona, USA)
US equities finished with modest losses after S&P 500 recording fresh high during intraday trade as investors continued to focus on huge infrastructure spending, possible rise in corporate taxes and brightening outlook of USA economy. IMF has raised its forecast for USA and global economy growth to 6.4% and 6%, respectively for 2021. Meanwhile, USA treasury yield softened to 1.66% and dollar index also weakened to 92.3, which should offer some comforts to emerging markets including India. Notably, minutes of recently concluded FOMC meeting are to be published today, which will be in focus for the day.
Domestic equities look to be flat at the moment. Given sharp rise in Coronavirus cases in the country and resultant mobility restrictions in several states, domestic equities are expected to remain volatile in the near term. While we believe that weekend lockdowns and night curfews are unlikely to create any major issue with regards to supply chain and demand disruption in the near term, prolonged restrictions and more states taking such measures may create some disruption in coming months. However, softening of bond yields, contraction in crude prices and weakness in dollar index in current week so far could offer some respite to markets. RBI's policy meeting outcome will be in focus today. While RBI is expected to keep policy rates and stance unchanged, investors will be focusing on RBI's commentary over inflation and bond markets. We believe that given experience in 2020 and possibility of further ramp-up in vaccination rollout process, spread of virus can be controlled without a large-scale of economic damage. Therefore, any near-term possible correction in the market should be treated as opportunity of bargain trading. A strong pick up in capital expenditures in FY22E, impact of new reforms announced in the budget to stimulate consumption activities and allocation for higher capital expenditures in select large state's budget for FY22E should continue to support ongoing rebound in corporate earnings. Investors must focus on quality stocks with robust earnings visibility and margins of safety.