Post Market views - Aug 9, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities traded sideways today, and profit booking was seen at tops. Notably, financials and IT supported market and arrested fall, while most key sectoral indices traded in red today. Visible economic recovery indicating strong credit growth in subsequent months and likely opening of complete economy eased concerns with regards to asset quality of banks, which essentially aided financials today. However, selling pressure in midcap and smallcap stocks continued. Axis Bank, M&M, Bajaj Finserv and Tech Mahindra were among top Nifty gainers, while Tata Consumer Products, Hindalco, Coal India, and Adani Ports were laggards.

RBI's continued soft monetary policy stance to support ongoing economic recovery augurs well for domestic equities. Further, faster vaccination process in the country and absence of sharp spike in daily caseload despite opening-up economy bode well. We note that sharp improvement in key economic indicators like GST collection, auto sales volume and other high frequency indicators like e-way bills in July indicate sustainable rebound in corporate earnings 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.

Source : Equity Bulls

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