Post Market views - Sep 27, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equites traded in rangebound amid positive cues from global equities. However, heavy profit booking in IT and pharma nullified the impact of sharp recovery in Auto stocks. Further, financials and realty indices extended gains today. Nifty IT fell over 2.5% today as investors preferred to book some amount of profit ahead of September quarter earnings. Auto stocks witnessed strong rebound today as continued underperformance for last couple of months, expectations of improvement in demand scenario from October and positive commentary from select companies about semiconductor issue made investors to buy quality names in OEMs. Volatility index surged over 6% today, while profit booking was seen in midcap and smallcap stocks also. Maruti, Tata Motors, M&M and ONGC were among top gainers, while HCL Tech, Divi's Lab, Wipro and Tech Mahindra were laggards.

Benchmark indices outperformed global markets in recent week as favourable FOMC meeting outcome and sustained recovery in key economic indicators bolstered investors' confidence. Notably, tax collection data for 1HFY21 looks quite impressive, which virtually crossed pre-pandemic FY20 numbers with a wide margin. This certainly bodes well for economy and bond markets. However, investors remain on tenterhook with regards to progress on Evergrande. Additionally, ease of retail inflation at 5.3% for August bodes well as this should essentially aid RBI to maintain its soft monetary policy stance to support ongoing recovery in economic momentum. In our view, while 1QFY22 GDP growth 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. India is at the beginning of capex revival phase and therefore corporate earnings recovery looks sustainable and premium valuations might sustain. Additionally, government's focus to improve credit growth through credit outreach programme and continued traction in PLI schemes augur well for domestic economy. While concerns over global growth due to recent rise in delta variant Coronavirus cases in different parts of the world continue to persist, we believe that underlying strength of domestic market remains intact. In our view, festive demand, recovery in rural demand, COVID-19 positivity rates and vaccination ramp-up will be in focus in the near term. We further believe that higher government's capex and revival in industrials' capex should aid economic recovery. However, liquidity driven market may take a backseat in 2022 and investors must start focusing on quality aspect of companies, in our view.

Source : Equity Bulls

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