Pre-Market views - April 5, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

US equities were steady last week as investors continued to get comfort from improving prospects of economic recovery, faster vaccination process, huge US$2.3trillion infrastructure spending program and recovery in job markets. Further, stabilization of treasury yields in the range of 1.7% also offered comfort. Minutes of FOMC meeting, which is to be published on Wednesday and Fed chairman Powell's commentary in IMF Panel on Thursday are to be important events for the week. Further, progress on bond yields is also crucial given lenders are now required to maintain Supplementary Liquidity Ratio.

Domestic equities do not look to be inspiring at the moment. While sharp improvements in key high frequency economic indicators in March i.e. GST Collections, e-way bills and railway freights bode well for markets, a sharp spike in Coronavirus cases in the country and resultant restrictions are likely to dent investors' sentiments in the near term. Imposition of weekend lockdown in Maharashtra, which contribute over 13% of country's GDP and ~20% of India's industrial output, does not augur well. However, we still believe that weekend lockdown is unlikely to create any supply chain issue. Further, given experience in 2020 and possibility of further ramp-up in vaccination rollout process, spread of virus can be controlled without putting a large-scale economic restriction. Therefore, we continue to believe that any near-term possible correction in the market would be creating an opportunity of bargain trading for investors. 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. Investors must focus on quality stocks with robust earnings visibility and margins of safety.

Source : Equity Bulls

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