Post Market views - June 25, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Benchmark Indices extended gains today mainly led by sharp rebound in Financials and metals. An improved prospects of loan recovery along with better outlook of credit growth led banking stocks to rebound. Notably, baring FMCG, most key sectoral indices traded in green. Further, buying was seen in midcap and smallcap stocks also, while volatility index corrected over 10% and fell below 14 marks. Tata Steel, Axis Bank, SBI and ICICI Bank were among top Nifty gainers, while RIL, HUL, NTPC and Asian Paints were laggards. Notably, benchmark Nifty recovered by ~1% this week mainly on favourable global cues triggered mainly by dovish commentary from Fed chairman Powell in his testimony during the beginning of week. This led investors' wealth to grow by over Rs3 trillion in this week in the domestic markets.

While Indian equites remained buoyant led by improved prospects of economic recovery in the backdrop of sharp contraction in daily caseload and ramp-up in vaccination programme, a sharp rise in crude price with Brent surpassing US$75/barrel and recent weakness in INR have emerged as key overhangs for the market. We note every US$5 increase in crude price can raise government's monthly import bill by ~Rs40-50bn and can stoke inflation further. However, expectations of sharp improvement in high frequency key economic indicators from current month supported by ease in business curbs in various states should continue to offer support to corporate earnings. Notably, minutes of RBI policy meeting published last week were favourable, which indicated continued accommodative stance from RBI as to spur economic activities in the country. Additionally, recent testimony of Fed chairman Powell indicates that soft monetary policy in the USA is unlikely to reverse in medium term, which appears to have allayed investors' concerns. In our view, investors will be watching the progress on daily caseload, vaccination ramp-up and monsoon progress in the near term. In addition to high government's capex, 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. 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 outperform in FY22E.

Source : Equity Bulls

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