Post Market views - Oct 7, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
2021-10-07 21:42:27 (Time Zone: IST)
Domestic bourses witnessed sharp rebound today mainly on strong cues from global equities, which was triggered led by sign of crude price softening and favourable progress on USA debt ceiling. Strong rebound in auto, IT and private banks supported market rally today. Further, Nifty realty was up over 5% today mainly led by strong 2QFY22 provisional numbers reported by select real estate companies. Further, IT stocks also witnessed sharp recovery ahead of TCS numbers tomorrow. Expectations of strong growth despite margin pressure and recent weakness in INR fueled rally in IT companies. Notably, Nifty midcap index was up over 2% today and outperformed broader index as improved visibility of strong earnings growth led investors to lap-up quality midcap names. Tata Motors, Titan, M&M and Maruti were among top Nifty gainers, while ONGC, Dr Reddy's, Coal India and HDFC were laggards.
Notably, India's sovereign rating upgrade by Moody's Investors Services in the backdrop of persistent improvement in key economic indicators and faster ramp-up in vaccination bodes well and may aid India to remain resilient compared to global equities. Further, steady rise in disbursal of banks and NBFCs in 2QFY22 (as shown in their provisional numbers reported to exchanges) vindicates growth momentum of the economy. However, sharp rise in oil prices is a fresh overhang of Indian equities, which can essentially result in further hardening of inflation and adversely impact government's fiscal math. However, high frequency key economic indicators in September in the form of GST collection, manufacturing PMI, import-export data and e-way bills continued to reflect improvement in economic activities, which bode well for corporate earnings. Further, growth in many cases started surpassing pre-pandemic levels, which also offers comfort. Notably, benchmark indices outperformed global markets in recent period as sustained recovery in key economic indicators and faster vaccination ramp-up with least possibility of third wave of COVID-19 hitting in a bigger way bolstered investors' confidence. Notably, tax collection data for 1HFY21 was also quite impressive, which virtually crossed pre-pandemic FY20 numbers with a wide margin. However, investors remain on tenterhook with regards to progress on Evergrande and increase of debt ceiling in the USA. In our view, India is at the beginning of capex revival phase and therefore corporate earnings recovery looks sustainable and premium valuations 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 continue to persist, we believe that underlying strength of domestic market remains intact. In our view, festive demand, recovery in rural demand, COVID-19 positivity rates, vaccination ramp-up, September quarter earnings and RBI policy meeting outcome will be in focus in the near term. Further higher government's capex and revival in industrials' capex should continue to aid economic recovery in the medium to long term. However, liquidity driven market may take a backseat in 2022 and investors must start focusing on quality aspect of companies, in our view.