Post market views - May 26, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities remained upbeat as improved visibility about economic recovery from 2QFY22 continued to lift investors' sentiments. Barring metals, most key sectoral indices traded in green. IT stocks witnessed sharp rebound today after positive commentary of select managements about strong execution delivery despite second wave of pandemic. Notably, volatility index shot up sharply today over 12%. However, midcap and smallcap stocks underperformed benchmark index Nifty today. Bajaj Finserv, Grasim, Infosys and Bajaj Finance were among top Nifty gainers, while Powergrid, Hindalco, JSW Steel and Tata Steel were laggards.

A sharp drop in daily caseload in second wave (remaining below 2 lakhs for two days) and improvement in recovery rates have emboldened investors in last one week. Further, robust 4QFY21 earnings and favourable commentaries from managements also aided to lift sentiments. Going forward, likely announcement of phased withdrawal of state level lockdowns in coming weeks and recovery in economic activities can potentially aid market to sustain rally in the near to medium term. Further, recent softening in bond yields in the USA and dollar index below 90 markets offer additional comfort, which can essentially lead FIIs' flow to turn favourable. Investors will continue to focus on trajectory of daily caseload and vaccination ramp up in the country in the near term. Further, investors in domestic equities will focus more on trajectory of corporate earnings in coming quarters. 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 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. In our view, sectors considered to be major beneficiaries of capex revival are likely to be back in focus in coming weeks.

Source : Equity Bulls

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