Post Market views - May 20, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities corrected for second consecutive day as selling pressure in financials, FMCG and metals dragged Nifty below 15,000 levels. Further, weak global cues led by increasing apprehensions among investors post release of FOMC meeting minutes also weighed on sentiments. Metal stocks witnessed heavy selling pressure after China's move to curb commodity prices in the country. Baring PSU Banks and realty, most key sectoral indices traded in red. However, midcap, and small cap stocks remained in focus as investors continued to lap-up quality names in these spaces. M&M, BPCL, Cipla and IndusInd Bank were top Nifty gainers, while Tata Steel, Hindalco, Coal India and ONGC were laggards.

Notably, visible decline in daily caseload has offered comfort to investors, which aided Nifty to surpass 15,000 marks in the week. Daily caseload remaining below 3 lakh marks despite increase in testing 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. However, minutes of FOMC meeting indicates diversions among members' view about higher inflation and accommodative stance and ECB's warning toward potential bubble in financial assets do not bode well for global equities including India. This raises concerns about possible taper tantrum in early 2022, which is also expected to weigh on investors' sentiments in coming week and can be a headwind for market. However, investors in domestic equities will focus more on trajectory of corporate earnings in coming quarters. Notably, 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.

Source : Equity Bulls

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