Post Market views - Aug 20, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities witnessed high volatility with selling pressure across the counters. Notably, barring FMCG, most sectoral indices traded in red with Nifty metal witnessing steepest decline followed by realty, PSU Banks, and pharma. Rise in delta variant of Coronavirus in various parts of the world and increasing concern about sustainability of ongoing economic recovery globally led heavy profit booking in metal stocks. Midcap and smallcap stocks remained underperformer today with continued selling pressure, while volatility index soared ~8% today. Notably, benchmark Nifty softened modestly by 0.3% in this week, while investors' wealth contracted by Rs1.5 trillion during the week. HUL, Britannia, Asian Paints and Nestle were among top Nifty gainers, while Tata Steel, JSW Steel, Hindalco and UPL were laggards.

Notably, indication of winding down monthly asset purchase programme in FOMC meeting minutes made investors jittery, which weighed domestic equities also. However, considering improved visibility of sustained earnings growth in subsequent quarters, a meaningful correction in quality midcap names should be bought. A sharp improvement in key economic indicators like GST collection, auto sales volume despite supply disruption, improvement in collection efficiencies of MFIs and other high frequency indicators like e-way bills, power consumption, strong import-export growth in July, etc. indicate sustainable rebound in corporate earnings in subsequent quarters. This should aid market to sustain premium valuations. Further, contraction in July CPI at 5.6% offers comfort as it went below RBI's target range of 2-6%, which should offer space to RBI to maintain its soft monetary policy stance in subsequent quarters as well. This certainly augurs well for corporate earnings. 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. In our view, progress of monsoon, festive demand and COVID-19 positivity rates will be in focus in coming days. We note 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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