Post Markets views - Jan 4, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities remained in the grip of bulls with benchmark Sensex hitting 48000 levels first time ever. Developments with regards to approval of Covid-19 vaccine along with steady improvement in key economic data like GST collections, energy demand and railway freight loading offered fresh optimism to the market. Additionally, strong manufacturing PMI data for Dec'20 published during market hour bolstered investors' confidence. Barring financials, most of key sectoral indices traded in green. Auto, IT and Metals indices recorded sharp gains. However, it was midcap and small cap indices once again which stole the show. A wide valuations gap and strong earnings potentials are attracting investors to midcap and small cap names.

In our view, likely commencement of inoculation process soon and sustained recovery in key high frequency economic indicators bode well for the market. Further, FPIs positive flows are expected to sustain in subsequent weeks and visibility of DIIs turning net buyers would be advantageous for markets. 3QFY21 earnings and Union Budget will be crucial events for the market in the near term, which will offer clarity about the sustainability of demand momentum in subsequent months. However, considering rich valuations of markets, we believe market may not see a sustainable broad-based rally and therefore investors must focus on quality companies with strong earnings potential and margins of safety.

Source : Equity Bulls

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