Post Market views - June 16, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equities traded weak today led by selling pressure in financials, auto and metals. Additionally, weak global cues ahead of crucial FOMC meeting outcome today also weighed on sentiments. Barring FMCG and IT, most key sectoral indices traded in red. Profit booking was visible across the counters including midcap and small caps. Tata Consumers, NTPC, Nestle India and ONGC were among top Nifty gainers, while Adani Ports, Hindalco, JSW Steel and Tata Steel were laggards.
An improved prospect of earnings recovery due to reopening of economy and ramp up in vaccination drive lifted investors' sentiments in recent weeks and defied concerns pertaining to higher crude prices and inflation. Notably, government's plan to expedite development programmes to push economic activities and visible 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 the near term. 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 today will also be crucial for Indian equities.