Pre-Market views - Aug 23, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Global equities were volatile last week as FOMC meeting minutes indicating possible winding down of US$120bn monthly asset purchase programme by the end of this year weighed on investors' sentiments. Further, persistent rise in delta variant of Coronavirus in various parts of the world and resultant impacts on global economy made investors jittery. Jackson Hole Virtual Symposium starting from Thursday will be the most crucial event for the week or month. Investors will be keenly watching out global central bankers especially statements of Federal Reserve Chairman with regards to his view on economy and prevailing soft monetary policy of Central Bank. We believe given rise in COVID-19 cases and impacts on retail sales and other key economic data; Powell's speech might not be hawkish. Additionally, housing data, Job data and Personal Consumption Expenditure data will be in focus.

Domestic equites look to be inspiring as of now. Minutes of MPC meeting held in the beginning of this month continues to show RBI's commitment to ensure policy support to sustain economy recovery despite select members showing some apprehensions about high inflation and pitching for gradual normalization in ultra-soft monetary policy. Further, considering improved visibility of sustained earnings recovery 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. 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. Additionally, as Federal Reserve intends to reverse its ultra-soft monetary policy by the end of this year, liquidity driven market rally might take a backseat and therefore investors should be advised to focus on quality companies with strong fundamentals. 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.

Source : Equity Bulls

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