Post Market views - June 23, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equities witnessed high volatility and contracted sharply from day's high. Baring Auto and PSU Banks, profit booking was visible across the counters. Announcement of price hikes and improved prospects of volume recovery continued to generate interest among investors for automobile companies. Notably, midcap and smallcap indices remained resilient mostly. Volatility index surged over 4% reflecting unease at higher levels. Maruti, Titan, UltraTech and M&M were among top Nifty gainers, while Adani Ports, Wipro, Divi's Lab and JSW Steel were laggards.
Notably, improved prospects of economic rebound and sustained recovery in corporate earnings aided domestic markets to remain buoyant. While weakening INR, rising crude prices and taper talk in the USA aggravated investors' concerns in last couple of days, India's daily caseload falling sharply 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 indicated 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.