Post Market views - June 22, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equities extended gains today mainly led by sharp recovery in Auto, Metals and PSU Banks. Further, favourable global cues also supported sentiments today. Notably, indication of price hike by Maruti and expectations of volume revival aided Auto index to surge over 1.5% today. Further, PSU Banks remained in focus for the second consecutive day as news flows pertaining to privatization and attractive valuations brought investors' interest to PSU Banks. Baring FMCG, most key sectoral indices traded in green today. Midcap and Small cap indices moved in tandem broader indices. Notably, volatility index softened by ~3% and fell below 15 marks again. Maruti, UPL, Shree Cement and Wipro were among top Nifty gainers, while Asian Paints, Bajaj Finance, Nestle and Kotak Bank were laggards.
Indian markets witnessed brisk recovery in last two days led by improved prospects of economic rebound and sustained recovery in corporate earnings. While weakening INR, rising crude prices and taper talk in the USA aggravated investors' concerns in last week, India's daily caseload falling below 60,000 and ramp-up in vaccination programme offer comfort. We believe 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 last week were favourable, which indicate continued accommodative stance from RBI as to spur economic activities in the country. In our view, 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 outperform in FY22E.