Post Market views - May 28, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities remained upbeat and recorded fresh high as improved prospects of economy recovery and strong 4QFY21 earnings continued to bolster investors' sentiments. A strong rebound in Reliance Industries was a key driving force today. Further, financials, auto and metals traded in green, while other key indices witnessed some amount of pressure. Volatility index fell sharply again by over 12%. Notably, sustained market rally added over Rs3 trillion in investors' wealth this week and aided market capitalization of domestic equity to cross landmark US$3 trillion during the week. Reliance Industries, Grasim, Adani Ports and M&M were among top Nifty gainers, while Sun Pharma, ICICI Bank, Bajaj Finance and Axis Bank were laggards.

Notably, a sharp drop in daily caseload in second wave (remaining below 2 lakhs despite higher testing) and improvement in recovery rates have emboldened investors in in last couple of days. 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 likely recovery in economic activities can potentially aid market to sustain rally in the near to medium term. However, with market cap of domestic equities crossing US$3 trillion and market-cap to GDP over 115%, there is apprehension among investors about the sustainability of market rally. RBI in its annual report also indicated about the possibility of bubble in equities. However, as recovery in corporate earnings looks to be sustainable led by receding second wave of pandemic leading to likely recovery in private capex and public capex, premium valuations of domestic equities are likely to sustain. Further, soft bond yields in the USA and dollar index remaining comfortable in the range of 90 marks 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. As earnings recovery in FY22E still remains promising, any near-term correction in the market should be treated as opportunity of bargain trading. However, 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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