Post Market views - Sep 30, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic benchmark indices traded weak today amid mixed global cues. Further, F&O expiry also created some amount of volatility. Notably, baring pharma, PSU banks and realty, most key sectoral indices traded in red today. Realty stock remained in focus as improved visibility of earnings growth led by strong volume and low interest rate scenario lifted sentiments. On a positive surprise, Nifty midcap and smallcap indices extended gains as investors continued to buy quality names in these spaces on improved earnings outlook. Bajaj Finance, Sun Pharma, Tata Motors and NTPC were among top Nifty gainers, while Asian Paint, Powergrid, Axis Bank and Bajaj Auto were laggards.

Notably, 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 and increase of debt ceiling in the USA. Further, sharp rise in USA bond yield and dollar index (rose ~2% 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, vaccination ramp-up and September quarter earnings will be in focus in the near term. Further higher government's capex and revival in industrials' capex should continue to aid economic recovery in the medium to long term. 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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