Post Market views - Sep 2, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities recovered sharply today with benchmark Nifty recording fresh all-time high mainly aided by sharp recovery in IT, pharma and consumer spaces. Additionally, heavyweight financials have also extended gains and supported rally. Barring PSU Banks and Automobile, most key sectoral indices traded in green. Notably, HDFC Life witnessed sharp uptick ahead of board meeting tomorrow for fund raising, while cement stocks were in focus on expectations of price increase in current month. Further, strong buying momentum remained visible in midcap and small cap stocks, while volatility index inched up ~1% today. Shree Cement, HDFC Life, TCS and Cipla were among top Nifty gainers, while M&M, ONGC, Bajaj-Auto and Tata Motors were laggards.

Notably, high frequency key economic indicators for Aug'21 in the form of GST collection, railway freight, auto sales volume despite semiconductor issues and fuel volumes indicate a sustained economic recovery on YoY comparison. While 1QFY22 GDP expanded 20.1% indicating a sharp recovery, there has been sharp contraction in sequential comparison due to second wave of COVID-19 and growth is still lagging from pre-pandemic level. Hence, economy still needs policy support from government and RBI, which is likely to persist. Additionally, low fiscal deficit at Rs3.21 trillion (21.3% of budgeted) as ofJuly'21 reflects that government can spend more in coming months to sustain economic activities. These indicate a sustainable earnings growth in subsequent quarters. We further believe that India is at the beginning of capex revival phase and therefore corporate earnings recovery looks sustainable and premium valuation might sustain. Additionally, government's focus to improve credit growth through credit outreach programme augurs well for domestic economy. Notably, no mention about actual timeframe for reversal of US$120bn monthly asset purchase programme by Mr. Powell in Jackson Hole Symposium and indications of no interest rate hike in the medium term essentially show that taper tantrum is still not in the sight in the near term, which augurs well for global equities. In our view, winding down of asset purchase programme by the Federal Reserve might not happen before Nov'21, which is broadly being factored by market. 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. However, considering current macro scenario, liquidity driven market rally might take a backseat in 2022 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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