Pre-Market views - April 1, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

US stocks closed mostly higher yesterday mainly led by sharp rebound in technology stocks. Notably, White House has released the outline of its proposal of massive infrastructure spending worth US$2.3trillion with key focus on roads, airports, water, green energy, etc. This would be offset by raising corporate taxes from 21% to 28%. Further, spending target can be increased further to US$4trillion later-on. Additionally, 10-Year Treasury yield increased to 3bps to 1.75% and as Supplementary Liquidity Ratio will be applicable for lenders from today, bond yield may possibly harden further in coming days.

Domestic equities look to be good at the moment on favourable global cues. Clearly, sharp rise in Covid-19 cases in various parts of the country made investors jittery. Further, hardening bond yields and strengthening dollar index aggravated investors' concerns. Hence, domestic equities are expected to remain volatile in the near term as long as spike in coronavirus cases is not controlled. A sharp 4.6% contraction in Core Sector output for February does not bode well and underline a patchy economic recovery. However, we believe core sector output is likely to witness a sharp recovery in FY22E led by higher capital expenditures target by the government. Given the experience of 2020, Coronavirus 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. Further, 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, any meaningful correction in the market should only be creating an opportunity for bargain trading in quality stocks. Investors must focus on companies with strong earnings visibility and margins of safety.

Source : Equity Bulls

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