Post Market views - July 8, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equites witnessed sharp correction amid weak global cues. Hang Seng corrected over 2.5% today as investors dumped Chinese tech giants led by mounting concerns about regulatory risk. Selling pressure was seen across all counters in Indian markets, while IT stocks broadly remained resilient ahead of TCS earnings today. Metals and financials witnessed steeper correction. Notably, midcap and smallcap indices continued to outperform broader indices despite moderate profit booking. Volatility index surged over 11% today and trending above 13.5 levels, but it still looks comfortable. Tech M, Bajaj Auto, Eicher Motors and Shree Cement were among top Nifty gainers, while Tata Motors, JSW Steel, Hindalco and Tata Steel were laggards.
Notably, minutes of FOMC meeting showed that Federal Reserve's substantial progress target for economic recovery has not met yet. Therefore, scaling back of ultra-accommodative policy stance does not look to be imminent in the medium term, which offers comfort to global equities. Additionally, visible improvement in business momentum with ease of business curbs by states started offering comfort. Hence, we continue to believe that any meaningful correction in the market should be taken as an opportunity to get in quality stocks. Strong data from core sector output for May, strong rise in import-export business momentum in June and visible traction in overall economic activities in June indicate healthy corporate earnings for 1QFY22E despite second wave of COVID-19. Additionally, GST collection for June despite falling below Rs1 trillion continues to indicate economic resilience and reflects narrow impact of second wave of COVID-19. Notably, announcement of slew of measures by Finance Ministry to spur economic activities augurs well. In our view, progress of monsoon, 1QFY22E corporate earnings and COVID-19 positivity rates will be in focus in the near term. Further, higher government's capex and revival in industrials' capex should aid economic recovery. Further, reversal in crude prices in last couple of days offers comfort, while strengthening dollar index remains an overhang for the markets. As 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.