Post Market views - May 7, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equities extended gains for third consecutive day mainly on favourable global cues and continued traction in financials (ex- PSU Banks) and metals. Baring, PSU Banks, most key sectoral indices traded in green today. Metals stocks remained in focus today led by robust 4QFY21 performance delivered by select Metal companies and improved visibility of sustainable earnings momentum in coming quarters. Volatility index softened by over 5% today and now it ranges below 21 levels. Notably, Nifty shrugged off rising COVID-19 cases for second consecutive week by recording weekly gain of over 1% and adding over Rs4 trillion to investors' wealth. Tata Steel, Hindalco, Adani Ports and JSW Steel were top Nifty gainers, while Tata Consumer, Hero Motocorp, Bajaj Auto and Eicher Motors were laggards.
While several states had started showing sign of reversal in daily caseload in last couple of days, sharp rise in daily cases again raises concerns. However, government stated that the worst hit regions like Maharashtra, Delhi and Punjab may see ease in cases in next 5-10 days, while concerns over other states and rural part of the country continue to persist. Notably, market is still factoring-in reversal in daily caseload by the end of May or mid of June and any sign of absence of reversal in caseload within this period may dent investors' sentiment. On the positive side, record GST collection of Rs1.41 trillion for April'21 and steady manufacturing PMI data for April offer comfort, which indicate that economic activities were not hit massively in April. Further, liquidity support measures announced by the RBI augurs well for lenders and economy. In our view, investors would be keenly watching out vaccination progress and recovery rates. 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.