Post Market views - Sep 29, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities witnessed brisk recovery from days' low amid mixed cues from global equities mainly led by strong rebound in metal, pharma, and PSU banks. Further, IT and realty stocks also recovered sharply. Notably, baring financials (excluding PSU Banks), most key sectoral indices recovered from lows and traded in green today, while stronger buying was seen in midcap and smallcap stocks with Nifty midcap index gaining more than 1%. Metals stocks were in focus today led by sustained visibility of earnings growth and improving export outlook for domestic metal companies. Coal India witnessed sharp uptick today on account of rise in underlying commodity prices and general shift from growth to value stocks. In addition to coal India, NTPC, Powergrid and Sun Pharma were among top Nifty gainers, while Kotak Bank, HDFC, UltraTech and ICICI Bank were laggards.

Benchmark indices outperformed global markets in recent period as sustained recovery in key economic indicators and faster vaccination ramp-up with least possibility of third wave of COVID-19 hitting in a bigger way bolstered investors' confidence. Notably, tax collection data for 1HFY21 looks quite impressive, which virtually crossed pre-pandemic FY20 numbers with a wide margin. This along with government's borrowing target of Rs5.03trillion (mostly on expected line) certainly bodes well for economy and bond markets. However, investors remain on tenterhook with regards to progress on Evergrande. Further, sharp rise in USA bond yield and dollar index (rose ~15% in a month) could be a near term risk for emerging markets. We believe ease of retail inflation in India 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. Further, 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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