Post Market views - June 3, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities remained upbeat with benchmark Nifty recording fresh high today. Rebound in heavyweight financial services supported market once again. Further, realty followed by FMCG and metals also witnessed sharp recovery. However, IT, Pharma and Auto witnessed some amount of pressure. Notably, midcap and small cap stocks continued to outperform broader indices as improved prospects of sustainable earnings recovery continue to attract investors towards this space. Sugar stocks were in focus today after government yesterday brought forward target of achieving 20% ethanol blending in petrol by two years to 2023. Volatility index fell ~10% today to the level of 15.5. Titan, ONGC, L&T and Axis Bank were among top Nifty gainers, while IndusInd Bank, Wipro, Cipla and M&M were laggards.

Notably, increased optimism about of economic recovery with fall in daily caseload in second wave and improvement in recovery rates has already led domestic equities to new highs. Further, beginning of gradual withdrawal of restrictions by states indicates that economic indicators should start improving from current month. Notably, a sharp 28% YoY and QoQ jump in government's expenditures in 4QFY21 (key element of 4QFY21 GDP growth) shows government's commitment to spur economic activities. Going forward, with opening-up economy at states level, government's higher allocation towards capital expenditures for FY22E should be helpful in driving economic growth in coming quarters. Further, robust Rs4.2 trillion surplus balance at RBI for government offers comfort about government's meeting its funding commitments. Additionally, various industries have also announced higher capex programme to sustain growth, which should also aid economic recovery. Therefore, 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 remains promising. Further, soft bond yields in the USA, recovery in INR and dollar index remaining comfortable in the range of 90 offer additional comfort. This along with improving prospects of earnings visibility has already resulted FIIs' flow to turn favourable in last couple of days. Investors will continue to focus on trajectory of daily caseload and vaccination ramp up in the country in coming weeks. While domestic equites continue to look good, 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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