Post Market views - Aug 6, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities traded in a rangebound but sharp correction in RIL dragged benchmark Nifty to red. Further, weak cues from Asian markets also weighed on sentiments. However, midcap and smallcap stocks witnessed some amount of recovery today after continued profit booking in last three days. RBI's policy meeting outcome was broadly on expected line with continued focus to support economic recovery through soft monetary policy. RIL witnessed sharp correction after the apex court's ruling came in favour of Amazon with regards to Reliance-Future growth deal. Notably, benchmark Nifty gained over 3% in the week and made historic highs, while investors' wealth increased by over Rs4 lakh crore. Adani Ports, IndusInd Bank, IOC and Tech Mahindra are among top Nifty gainers, while Cipla, RIL, UltraTech Cement and SBI were laggards.

Government's decision to do abolish retrospective taxation on transactions involving indirect transfer of Indian assets through new amendment bill is a fantastic move and it should aid to attract more foreign investments going forward, which is much needed to support faster economic recovery and job creation. Further, RBI's continued soft monetary policy stance augurs well for domestic equities. Given sharp improvement in key economic indicators like GST collection, auto sales volume and other high frequency indicators like e-way bills in July, we believe strong momentum of corporate earnings may sustain in subsequent quarters. This should aid market to sustain premium valuations. Notably, barring Financials, June quarter earnings so far have been encouraging and most companies succeeded to beat consensus estimates, which offered comfort. We further believe that intensifying asset quality worry for banks and NBFCs, especially after June quarter earnings reported by large private banks, is likely to ease with the reopening of complete economy and faster job creation. While concerns over global growth due to recent rise in delta variant Coronavirus cases in different parts of the world continues to persist, we believe that underlying strength of domestic market remains intact and any meaningful correction in the market should be taken as an opportunity to buy. In our view, progress of monsoon, 1QFY22E corporate earnings and COVID-19 positivity rates will be in focus in coming days. Further, higher government's capex and revival in industrials' capex should aid economic recovery. 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

Keywords