Post Market views - May 19, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities corrected today after recording sharp upswing in last two day. Notably, profit booking was visible in most counters. Baring pharma, realty, and IT, most of key sectoral indices traded in red today. Notably, benchmark Nifty continued to trade above 15,000 levels throughout the day. Volatility index also remained below 20 levels, which continues to augur well. Further, strong buying was visible in midcap and smallcap stocks, as concerns of sharp earning downgrade appears to be fading with early sign of decline in second wave of daily caseload. Coal India, IOC, Cipla and Sun Pharma were among top Nifty gainers, while Tata Motors, M&M, HDFC and JSW Steel were laggards.

Clearly, visible decline in daily caseload (daily cases remaining below 3 lakh for last three days) has bolstered investors' confidence, which essentially indicates that earlier assumption of daily caseload in second wave peaking-out by the end of May or mid of June holds true and adverse impact of second wave should not be felt beyond 1QFY22. Investors will continue to focus on trajectory of daily caseload and vaccination ramp up in the country in the near term. We note that despite putting enhanced mobility restrictions by states, manufacturing, and infrastructure activities have not halted yet and companies appeared to be proactive this time to convince most workers to stay back by offering basic amenities and facilities. Further, supply chain has so far been comfortable. Notwithstanding some adverse impact on economic activities in 1QFY22E, a sharp pickup in capital expenditures in current fiscal is still on the cards. 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. However, macro concerns from rising inflationary pressure globally and increasing apprehension among investors about Federal Reserve's soft monetary stance due to sharp rise in CPI inflation may equally weigh on sentiments.

Source : Equity Bulls

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