Post Market views - July 28, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equities extended losses today as weak cues from global markets triggered by selling pressure in Chinese tech stocks due to regulatory overhang weighed on sentiments. Further, persistent selling pressure in financials led by concerns over asset quality dragged benchmark index. However, positive cues from European markets and buy on dips helped market to recover from day's low in second half. Barring metals, most key sectoral indices traded in red, while volatility index surged further by ~5%. Notably, it was a broad-based correction today as midcap and small cap stocks contracted in tandem with broader indices. Bharti Airtel, IndusInd Bank, SBI Life and Tata Steel were among top Nifty gainers, while Kotak Bank, Cipla, Dr Reddy's and Tata Motors were laggards.
Notably, 1QFY22 corporate earnings have been strong so far and commentary of most managements also have been encouraging. However, asset quality worry for banks and NBFCs post 1QFY22 earnings cards of HDFC Banks, ICICI Banks and Axis Bank weighted on index heavyweight financials. However, asset quality of banks is likely to improve with the reopening of complete economy and faster job creation. While concerns over global growth due to recent rise in delta variant Coronavirus cases in different parts of the world continues to persist, we believe that underlying strength of domestic market remains intact and any meaningful correction in the market should be taken as an opportunity to buy. Visible improvement in key economic data in June and satisfactory ramp-up in vaccination indicate healthy corporate earnings in subsequent quarters. Further, expectations of sustained soft monetary policy stance of the RBI despite higher inflation and recent drop in crude prices augur well for equities in India. In our view, progress of monsoon, 1QFY22E corporate earnings and COVID-19 positivity rates will remain in focus in the near term. Further, higher government's capex and revival in industrials' capex should aid economic recovery. 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.