Post Market views - May 10, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equities continued to defy concerns of rising COVID-19 cases and extended mobility restrictions by several state by extending gains for the fourth consecutive trading day. Notably, sharp rebound in metals, pharma, auto and PSU Banks supported market's rally today. Most of key sectoral indices traded in green today, while volatility index softened further by over 3%. Coal India, Hindalco, UPL and Tata Motors were among top Nifty gainers, while Shree Cement, Britannia, Infosys, and UltraTech Cement were laggards.
We note that favourable global cues, steady March quarter earnings along with favourable commentary, liquidity support announced by the RBI and absence of nationwide lockdown have aided domestic equities to shrug off rising COVID-19 cases in the country. However, elevated daily caseload, higher positivity rate and rising COVID-19 cases in hinterlands of the country are expected to weigh on investors' sentiments and will prevent market to take any decisive up-move. Despite states are extending lockdowns / mobility restrictions in recent days, market is still factoring-in reversal in daily caseload by the end of May or mid of June. We believe any sign of absence of ease in caseload within this period may dent investors' sentiment. 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 initial disruption due to second wave of COVID-19. Notwithstanding some adverse impact on economic activities for in 1QFY22E, 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.