Post Market views - July 9, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities.
(Time Zone: UTC)
Domestic equities traded in a weak note today mainly led by continued profit booking in financials. However, metals, pharma and realty indices shined, while IT index remained soft today after TCS missed earnings estimates. Notably, buying momentum remained visible in midcap and smallcap stocks as improved earnings prospect attracted investors' interest. Volatility index softened over 4% today and fell below 13 levels. Bajaj Finserv, Tata Steel, Adani Ports and JSW Steel were among top Nifty gainers, while Bajaj Auto, TCS, HDFC Bank and RIL were laggards. Nifty for the week corrected marginally by 0.2%, while investors' wealth inched up by ~Rs1 trillion mainly aided by rebound in midcap and smallcap stocks.
While visible improvement in business momentum with ease of business curbs by states started offering comfort, recent uptick in daily caseload and increasing positive rate could be a near term risk as we saw Japan imposed fresh restrictions in Tokyo yesterday. However, 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. Additionally, minutes of FOMC meeting this week 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. While underlying strength of domestic markets remains intact, 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.