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

Domestic equities witnessed heavy sell-off today as sharp rise in COVID-19 cases in the country and economic restrictions imposed in Maharashtra dented investors' sentiments. Barring IT and Metals, all key sectoral indices witnessed steep correction with Financials witnessing steepest fall mainly on renewed apprehensions about asset qualities and recovery in credit growth cycle. Volatility index also soared sharply by over 6%. HCL Tech, TCS, Wipro and Britannia were among top gainers, while Bajaj Finance, SBI, IndusInd Bank and Axis Bank were laggards.

While sharp improvements in key high frequency economic indicators in March i.e. GST Collections, e-way bills and railway freights bode well for economy, a sharp spike in Coronavirus cases in the country and resultant business restrictions are likely remain as near-term headwinds for domestic equities. Imposition of weekend lockdown in Maharashtra, which contribute over 13% of country's GDP and ~20% of India's industrial output, certainly 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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