Post Market views - Aug 24, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities recovered sharply today mainly led by strong rebound in financials and metals. Further, positive cues from global equities also supported markets. Barring IT and FMCG, most key sectoral indices traded in green. Notably, short coverings ahead of F&O expiry also aided some high beta stocks to witness sharp recovery today. Further, midcap and smallcap stocks witnessed sharp recovery today after seeing continued selling pressure in recent weeks. Sharp correction in number of quality midcap stocks had started offering healthy risk-reward propositions. Bajaj Finserv, Tata Steel, Hindalco and Adani Ports were among top Nifty gainers, while Britannia, HDFC, Asian Paints and Nestle were laggards.

Notably, benchmark indices witnessed high volatility in recent period especially after FOMC meeting minutes, which indicated likelihood of reversal of monthly asset purchase programme by the end of this year. It essentially means that liquidity driven market might come to an end. However, 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-loose 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-loose 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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