Post Market views - June 4, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Benchmark Nifty corrected marginally led by contraction in financials, especially in banks. Further, weak global cues also weighed on sentiments. Notably, a moderate increase in inflation forecast by the RBI in its policy meeting outcome today led G-sec yields increasing by ~3bps, which resulted in profit booking in banks. Baring metals and realty, most key sectoral indices traded in red today. However, midcap and smallcap stocks continued to outperform led by improved earnings visibility. Grasim, Coal India, Bajaj Finance and Tata Motors were among top Nifty gainers, while SBI, HDFC Bank, ICICI Bank and Axis Bank were laggards today. Notably, Nifty recorded weekly gain of ~1.5% and added ~Rs6trillion in investors' wealthy during the week.

MPC meeting outcome today was mostly in-line with expectations as RBI, in addition to maintaining status quo about policy rates, focused upon ensuring sufficient liquidity in the system and supported MSMEs and corporate hit in second wave. An improved prospect of economic recovery led by sharp drop in daily caseload, ramping up vaccination process and gradual withdrawal of restrictions imposed by states has already led markets to witness fresh high in this week. 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, over Rs4 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 the near term. 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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