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

Domestic equities shrugged-off Covid-19 spikes on favourable global cues and recovered sharply mainly led by strong buying in financials and automobile stocks. Strong monthly volume for March helped auto stocks to attract investors' interest. Further, huge infrastructure spending budget in the USA and possibility of persistent benign pricing environment resulted Nifty metal index to rebound over 5%. Barring FMCG, all key sectoral indices ended in green. Notably, midcap and smallcap indices continued to outperform broader indices. Volatility index softened by over 3%. JSW Steel, Hindalco, Tata Steel and Adani Ports were top gainers, while HUL, HDFC Bank, NESTLE and HDFC Life were laggards.

Domestic equities are expected to remain volatile in the near term as long as spike in Coronavirus cases is not controlled. Further, hardening bond yields and strengthening dollar index may further aggravate investors' concerns. 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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