Post Market views - Oct 1, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Benchmark index Nifty fell for the fourth consecutive day today on weak global cues. Further, heavy selling pressure on financials (excluding PSU banks) and IT dragged index. However, buying was seen in pharma, metals and PSU banks. Further, better than expected sales volume for select automobile companies enabled Nifty Auto index to recover from day's low, while investors preferred to book some amount of profit in IT space ahead of September quarter earnings beginning from next week. Notably, Nifty midcap and smallcap indices continued to outperform broader index as sustained earnings visibility continued to augur well for quality names in midcap space. Volatility index fell sharply today in the range of ~6%. Nifty corrected ~2% in this week, while around Rs1.8 trillion was wiped out from investors' wealth in the week. M&M, Coal India, ONGC and IOC were among top Nifty gainers, while Bajaj Finserv, Bharti Airtel, Maruti and Asian Paints were laggards.

India's core sector growth for Aug'21 at 11.6% (vs. consensus expectation 8%) was encouraging and output also exceeded pre-pandemic Aug'19 by 3.9%. This along with strong GST collection for September (+23% YoY to Rs1.17 trillion) essentially show that Indian economy is moving on track, which augurs well for equities. 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. 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, rise in oil prices and dollar index (rose over 2% in a month) could be a near term risk for emerging markets. 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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