Post Market views - May 4, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equities gave-up gains towards the second half of the day and fell sharply as mounting uncertainty led by rise in second wave of COVID-19 cases weighed on investors' sentiments. Barring PSU Banks, selling pressure was visible across the sectors with Pharma witnessing steep correction today. Notably, volatility index contracted by ~3% and hovering around 23 levels. SBI Life, Bajaj Finance, BPCL and SBI were among top Nifty gainers, while Tata Consumers, Cipla, Divi's Lab and Sun Pharma were laggards.
While a persistent increase in daily caseload in several states is still a matter of concern, visible modest decline in new cases in many parts like Maharashtra and Delhi offers comfort. Hence, reversal of daily caseload in India by the end of May and mid of June looks possible. Further, Record GST collection of Rs1.41 trillion for April'21 and steady manufacturing PMI data for April offer comfort. In our view, central government will continue to handle this disaster by maintaining a fair balance between lives and livelihoods. Market participants would be keenly watching out vaccination progress at private hospitals. Further, despite putting enhanced mobility restrictions by states, manufacturing and infrastructure activities have not halted yet and companied appeared to be proactive this time to convince most workers to stay back by offering basic amenities and facilities. Therefore, a large economic damage like last year is unlikely to happen. Notably, management commentaries of various companies have so far been encouraging despite seeing some initial disruption due to second wave of COVID-19. Notwithstanding some adverse impact on economic activities for one or two months, a sharp pickup in capital expenditures in current fiscal is still on the cards. Hence, earnings recovery in FY22E still remains promising. Therefore, any near-term possible correction in the market should be treated as opportunity of bargain trading. Investors must focus on quality stocks with robust earnings visibility and margins of safety.