Post Market views - June 14, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equities witnessed U-turn today after witnessing steep gap-down opening. Sharp recovery in PSU banks, IT, FMCG and Reliance Industries supported market rebound. However, metals, realty and private bank indices remained in red. Notably, Adani Group stocks witnessed selling pressure after the new of NSDL freezing three FPI accounts owing Adani group shares. Additionally, poor 4QFY21 performance led BHEL to see sharp correction. Volatility index surged ~5% today. Tata Motors, RIL, Wipro and Bajaj Finance were among top Nifty gainers, while Adani Ports, Coal India, Kotak Bank and HDFC were laggards.
Indian equites remained buoyant in last couple of weeks aided by withdrawal of business curbs by states and improved prospects of economic recovery. Further, government's plan to expedite development programmes to push economic activities and pickup in business activities are expected to result in sharp improvement in high frequency key economic indicators from current month onwards. Sharp growth in IIP data for April indicates strong 1QFY22 earnings performance but pick up in consumption is much needed to sustain improvement in coming months. Investors will be watching out the progress on daily caseload (which looks to have weakened significantly), vaccination ramp-up and monsoon progress in coming weeks. In addition to high government's capex, various industries have also announced higher capex programme to sustain growth, which should also aid economic recovery. Therefore, notwithstanding some adverse impact on economic activities in 1QFY22E, a sharp pickup in capital expenditures in current fiscal is still on the cards. Hence, earnings recovery in FY22E remains promising. While domestic equites continue to look good, investors must focus on quality stocks with robust earnings visibility and margins of safety. In our view, sectors considered to be major beneficiaries of capex revival are likely to be back in focus in coming weeks. Soft bond yields and improving prospects of earnings visibility have resulted FIIs' flow to turn favourable in last couple of days, which are expected to sustain. However, FOMC meeting outcome this week will also be crucial for Indian equities.