Post Market views - May 12, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equities extended losses as selling pressure in financials (ex- PSU Banks), IT and metals dragged benchmark indices. Further, weak cues from Asian markets weighed on sentiments. Notably, Taiwan market fell sharply over 4% today due to concerns over rising COVID-19 cases and mounting concerns over technology stocks. Notably, PSU Banks, auto and pharma remained resilient. Further, buying was seen in number of quality small cap stocks. Huge profit booking was seen in metal stocks today after witnessing sharp run-up in recent weeks. Tata Motors, UPL, Titan and Cipla were among top Nifty gainers, while Tata Steel, JSW Steel, Hindalco and ONGC were laggards.
While daily caseload trending below 3.5 lakh for last two days 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. Further, progress on vaccination ramp up and availability of Jabs remain as matter of concerns. 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. 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. Additionally, recent appreciation in INR and dollar index trending lower along with possibility of sharp decline in real bond yield in the USA bode well for FIIs flow in domestic equities. 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.