Post Market views - Oct 18, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
2021-10-18 22:46:22 (Time Zone: IST)
Domestic equities extended gains amid mixed global cues with benchmark indices Nifty and Sensex recording all-time highs. Notably, financials (especially PSU banks), metals and IT witnessed sharp rebound and supported rally. Barring pharma, most key sectoral indices traded in green today. Further, Nifty midcap index gained over 1.5% today as improved visibility of sustained earnings recovery led by complete opening up of economy bolstered investors' confidence. Metal stock witnessed huge rally today after sharp rise in base metal prices in international markets. Further, steady 2QFY21 performance of HDFC Bank and improved outlook of asset quality supported rally in banking stocks. However, volatility index surged over 8% today indicating some amount of unease at top levels. Hindalco, JSW Steel, Infosys and ITC were among top Nifty gainers, while HCL Tech, M&M, Bajaj Auto and Dr Reddy's were laggards.
Notably, September quarter earnings have been quite encouraging so far with most companies succeeded to beat consensus estimates, which certainly offers comfort. Notably, sharp contraction in CPI print at 4.35% for September despite elevated oil prices and expectations of soft inflations in Oct'21 may continue to aid RBI to continue with its policy support to sustain ongoing growth momentum. Notably, RBI policy meeting outcome in the beginning of month was quite balanced; and it continued to sound dovish despite announcing measure of absorb excess liquidity through VRRR auctions. 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) and sharp rise in Securitization volumes in 1HFY22 vindicate 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.