Post Market views - Oct 12, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
2021-10-12 22:15:45 (Time Zone: IST)
Domestic equites traded in rangebound today, while benchmark indices continued to show resilience amid weak global cues. PSU banks and consumer durable stocks were in focus today and supported market, while IT stocks remained under pressure for second consecutive day due to subpar performance reported by TCS. Further, auto stocks also witnessed decent recovery led by expectations of possible ease in issue of semiconductors shortage in coming months. Barring IT and pharma, most key sectoral indices traded in green, while midcap and smallcap stocks continued to outperform large-cap stocks. Further, volatility index softened modestly today. Titan, Bajaj Auto, SBI and Hindalco were among top Nifty gainers, while HCL Tech, Tech Mahindra, Coal India and HDFC Life were laggards.
We believe 2QFY22 corporate earnings are going to be quite crucial for market, while IT behemoth TCS delivered subpar performance so far which weighed on overall IT index. However, RBI policy meeting outcome was quite balanced; and it continued to sound dovish despite announcing measure of absorb excess liquidity through VRRR auctions. Further, expectations of CPI inflation and economic growth look reasonable, and market continued to cheer RBI policy meet outcome. Further, 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. Additionally, high frequency key economic indicators in September in the form of GST collection, manufacturing PMI, import-export data, railway freight and e-way bills continued to reflect improvement in economic activities, which bode well for corporate earnings. Notably, 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. 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, rise in USA bond yield and elevated energy prices. 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. In our view, festive demand, recovery in rural demand, COVID-19 positivity rates, vaccination ramp-up and September quarter earnings 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.