Post Market views - Aug 25, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities traded in a range bound today ahead of F&O expiry. Barring IT, metal and FMCG, most sectoral indices turned red towards the final session of the day. However, smallcap stocks were in focus today with strong buying was seen in number of quality names. Additionally, investors continued to remain upbeat on IT stocks in the backdrop of sustained earnings visibility. Further, investors seem to be lapping-up FMCG stocks today. Volatility index surged over 2%. Adani Ports, HDFC Life, ONGC and Hindalco were among top Nifty gainers, while Bajaj Finserv, Titan, Maruti and Bharti Airtel 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. We believe India is at the beginning of capex revival phase and therefore corporate earnings recovery looks sustainable. Notably, 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, festive demand, recovery in rural demand and COVID-19 positivity rates will be in focus in the near term. We note higher government's capex and revival in industrials' capex should aid economic recovery.

Source : Equity Bulls

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