Post Market views - Sep 13, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
2021-09-13 18:07:38 (Time Zone: IST)
Domestic equities traded in rangebound today amid mixed cues from global equities. Notably, strong rebound in IT and metal counters arrested significant fall due to selling pressure in heavyweight financials and Reliance Industries. A sustained expectations of strong September quarter earnings led investors to lap-up IT names. Further, delay of launch of smartphone by two months due to Chip shortage led profit booking in Reliance Industries. Notably, midcap and smallcap stocks remain in investors' radar today with Nifty midcap and smallcap indices extending gains mainly on improving prospects of sustainable earnings recovery. Coal India, Hindalco, TCS and BPCL were among top Nifty gainers, while Reliance Industries, ICICI Bank, HUL and M&M were laggards.
Unlike developed markets, faster ramp-up in vaccination process and relatively lower daily caseload offer India an edge over other markets and therefore domestic bourses are resilient despite selling pressure in global equities. Additionally, 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. Further, July month IIP at 11.5% (higher than consensus estimate) almost reaching to pre-pandemic level also offers comfort. 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. 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 and continued traction in PLI schemes augur 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.