Post Market views - March 25, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equites fell for the third consecutive day despite favourable cues from Asian markets as prevailing concerns with regards to sharp rise in Covid-19 cases have clearly dented investors' sentiments. However, a sharp recovery in banking index aided market to curtail losses. Barring financials and metals, all key sectoral indices ended in red. Further, expiry factor also contributed to volatility. Notably, market capitalization of domestic market today slipped below Rs200 trillion first time after 3rd Feb'21 resulting in wealth erosion of over Rs5 trillion in last two days. Tata Steel, ICICI Bank, Dr Reddy's and HDFC were among top gainers, while Maruti, HUL, IOC and Bharti were laggards.

While receding USA treasury yields and crude prices this week so far offered some comfort to domestic markets, a sharp rise in Covid-19 cases in various parts of the country made investors risk averse. More importantly, a sharp rise in new cases in Maharashtra, which contributes over 13% of India's GDP and ~20% of country's industrial output, is certainly a matter of concern. However, we still believe that given the experience of 2020, spread can be controlled without putting a large scale of business restrictions. Additionally, a faster rollout of vaccination process can be helpful to contain the spread of virus. Hence, any adverse impact on business activities might not be meaningful. Notably, recent rebound in dollar index can also aggravate investors' concerns in the near term. However, a strong pick up in capital expenditures in FY22E, impact of new reforms announced in the budget to stimulate consumption activities and allocation for higher capital expenditures in select large state's budget for FY22E should continue to support ongoing rebound in corporate earnings. Hence, we believe that any meaningful correction in the market should only be creating an opportunity for bargain trading in quality stocks. In our view, patience of a large number of new investors is going to be tested in current volatile markets. Investors must focus on companies with strong earnings visibility and margins of safety.

Source : Equity Bulls

Keywords