Post Market views - June 21, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equities witnessed brisk recovery after seeing steep gap-down opening today and shrugged-off weak global cues once again. Notably, strong rebound in PSU Banks was a prime factor for market's recovery. Further, Reliance Industries also recorded some gains ahead of its AGM and arrested market's fall. Baring Auto and IT, most key sectoral indices recovered to green from initial losses. Notably, investors once again seemed to be lapping-up quality midcap and smallcap stocks after recent steep correction. Adani Group stocks witnessed sharp recovery today after steep correction in last week following media reports suggesting NSDL freezing three FPIs accounts invested in Adani Group stocks. Volatility index hardened by over 3% and hovering over 15 levels, which still looks to be reasonable. Adani Ports, NTPC, Titan and HUL were among top Nifty gainers, while UPL, Wipro, M&M and Maruti were laggards.
Undoubtedly, weakening INR, rising crude prices and doubts over sustainability of FIIs flow due to taper talk in the USA aggravated investors' concerns in last couple of days. While India daily caseload falling below 60,000 offers comfort, indication of third wave in next 6-8 months in the country can raise fresh concerns. However, impact of third wave can be the least compared to first two waves. We believe, given expectations of sharp improvement in high frequency key economic indicators from current month supported by ease of business curbs in various states should continue to offer support to corporate earnings. Notably, minutes of RBI policy meeting published on Friday were favourable, which indicate continued accommodative stance from RBI as to spur economic activities in the country. We believe investors will be watching out the progress on daily caseload, 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.