Post Market views - July 2, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities continued to trade in a rangebound with benchmark indices witnessing marginal gains. While financials, pharma and realty indices recovered modestly today, profit booking was visible across metals and FMCG counters. Notably, midcap and smallcap indices continued to outperform as improved earnings visibility attracted investors towards this space. Further, volatility index contracted by over 5% today. Divi's Lab, ICICI Bank, RIL and Adani Ports were among top Nifty gainers, while Tata Steel, Britannia, JSW Steel and Powergrid were laggards. Notably, Nifty contracted by ~1% for the week, while overall marketcap of market remained flat led by persistent rebound in midcap and smallcap stocks.

Notably, while Financial Stability Report (FSR) of RBI flagged emerging threats to economic recovery, it sounded optimistic about financial markets, which are resilient enough to deal with such threats. Further, sharp contraction in expectations of banks' GNPA from 13.5% for Sept'21 to 9.8% for Mar'22 in baseline scenario offers comfort. We continue to believe any meaningful correction in the market should be offering opportunity to investors to get in quality stocks. Strong data from core sector output for May and visible traction in economic activities in June indicate healthy corporate earnings for 1QFY22E despite second wave of COVID-19. Notably, announcement of slew of measures by Finance Ministry to spur economic activities augurs well. Increase in allocation for Emergency Credit Line Guarantee Scheme from Rs3 trillion to Rs4.5 trillion is a fantastic move to support pandemic hit sectors and ensure liquidity. Further, total fiscal impact on government's fiscal deficit is estimated to be less than 1% from total of Rs6.29 trillion relief packages announced under second wave of pandemic as most of these are in the form of credit linked loan schemes, this essentially may not distort higher capex programme of government. In our view, high frequency key economic indicators in next couple of days i.e. GST collections, railway freight, e-way bills, etc. would be in focus as sharp improvement is expected due to reopening of states' economy. Further, higher government's capex and revival in industrials' capex should aid economic recovery. 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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