Post Market views - April 23, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

It was a choppy trading day and benchmark indices fell sharply towards the final session of the market mainly led be selling pressure in across the sectors barring PSU Banks. IT, Metals, Auto and FMCG stocks witnessed relatively higher selling pressure. Notably, midcap and smallcap stocks remained in focus today and outperformed broader indices as investors appears to be lapping-up quality names after sharp correction in recent period. However, concerns of rising COVID-19 cases continued to weigh on investors sentiments. Notably, volatility index has softened a bit today offering some comforts. Powergrid, NTPC, IndusInd Bank and Axis Bank were among top gainers, while M&M, Britannia, Grasim and Dr Reddy's were laggards.

A sharp rise in COVID-19 cases across the country (daily cases crossed 3 lakhs for second consecutive day) and enhanced mobility restriction imposed by number of states are expected to remain as key overhangs for the market. This has started posing as a threat to corporate earnings recovery. Notably, possibility of supply disruption and increased COVID-19 cases in hinterland areas can further hurt economic momentum. We believe market is expected to remain volatile until we see a reversal in COVID-19 cases. Given, enhanced economic restrictions imposed by states and government's continued focus to increase supply of vaccines and allowing vaccines at private hospitals should be able to check spread of coronavirus in coming weeks. Further, despite putting enhanced mobility restrictions, manufacturing and infrastructure activities have not halted yet and companied appeared to be proactive this time to convince most workers to stay back by offering basic amenities and facilities. Therefore, given current status, a large economic damage like last year is unlikely to happen. Notwithstanding some adverse impact on economic activities for one or two months, a sharp pickup in capital expenditures in current fiscal is still on the cards. A meaningful pickup in government's capex and recovery in investment cycle are expected support corporate earnings in ensuing quarters. Hence, earnings recovery in FY22E still remains promising. Therefore, any near-term possible correction in the market should be treated as opportunity of bargain trading. Investors must focus on quality stocks with robust earnings visibility and margins of safety.

Source : Equity Bulls

Keywords