Post Market views - May 11, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equites corrected today after recording back-to-back gains in last four trading days. Weak cues from global markets and selling pressure across the counters dragged benchmark indices. Rising concerns over inflation globally due to sharp rise in commodity prices dragged Asian markets. Further, China inflation data also weighed on sentiments. However, domestic benchmark indices outperformed its Asian peers today. Baring Auto and PSU Banks, most of key sectoral indices traded in red. Notably, volatility index softened further and now trending below 20 levels. Coal India, IOC, NTPC and ONGC were top Nifty gainers, while Hindalco, JSW Steel, Kotak Bank and HDFC were laggards.
While decline in daily caseload yesterday offers comfort, elevated positivity rate and rising COVID-19 cases in hinterlands of the country are expected to weigh on investors' sentiments and may 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. Given contraction in daily caseload in certain large states, we believe pace of rising cases should be reversed in coming weeks. 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.