Post Market views - Sep 8, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
2021-09-08 20:26:54 (Time Zone: IST)
Domestic bourses witnessed modest contraction today mainly led by profit booking in IT and Auto stocks. Further, weak cues from global equities also weighed on investors' sentiment. Barring financials most key sectoral indices traded in a red zone today. Notably, textile stocks were in focus today as government approved PLI scheme worth Rs107bn for the sector. Additionally, buying was seen in midcap and smallcap stocks as recent contraction in this space made risk reward proposition favourable for number of stocks. Kotak Bank, Grasim, Powergrid and BPCL were among top Nifty gainers, while Divi's Lab, Nestle, Wipro and Maruti were laggards.
Market appears to be bit fatigue after sharp rebound in recent weeks. However, we continue to 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 ofJuly'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.