Post Market views - Sep 6, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
2021-09-06 21:46:51 (Time Zone: IST)
Domestic equities extended gains mainly led by sustained rebound in IT and metal stocks and favourable global cues. Further, strong rebound in Reliance Industries also supported market. However, financial and FMCG witnessed modest profit booking. Notably, strong buying was seen today in smallcap stocks with Nifty smallcap index recording gain over 1%. However, volatility index surged around 5% today. Wipro, Hindalco, Infosys and HCL Tech were among top Nifty gainers, while Britannia, IOC, ONGC and IndusInd Bank were laggards.
Notably, sharp revival in FIIs flow following dovish remarks of Fed Chairman and rebound in INR led domestic bourses to see sharp uptick in recent weeks. Additionally, weak nonfarm job data for August augurs well for emerging markets including India as it may prompt Fed to maintain its current stance. We further believe that high frequency key economic indicators for Aug'21 in the form of GST collection, railway freight, auto sales volume despite semiconductor issues, power consumption, import-export data and fuel volumes indicate a sustained economic recovery on YoY comparison. While 1QFY22 GDP growth 20.1% indicating a sharp recovery, there has been sharp contraction in sequential comparison due to second wave of COVID-19 and growth is still lagging from pre-pandemic level. Hence, economy still needs policy support from government and RBI, which is likely to persist. Additionally, low fiscal deficit at Rs3.21 trillion (21.3% of budgeted) as on July'21 reflects that government can spend more in coming months to sustain economic activities. These indicate a sustainable earnings growth in subsequent quarters. In our view, India is at the beginning of capex revival phase and therefore corporate earnings recovery looks sustainable and premium valuation might sustain. Additionally, government's focus to improve credit growth through credit outreach programme augurs well for domestic economy. 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. In our view, festive demand, recovery in rural demand and COVID-19 positivity rates will be in focus in the near term. We note higher government's capex and revival in industrials' capex should aid economic recovery. However, liquidity driven market may take a backseat in 2022 and investors must start focusing on quality aspect of companies, in our view.