Post Market views - Oct 4, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities witnessed sharp uptick today amid mixed global cues as steady improvement in key economic data in September and improved visibility of sustained economic outlook lifted investors' sentiments. Heavyweight financials witnessed strong rebound over 1% today and supported market rally. Further, metal, realty, IT, and pharma indices also recorded healthy gains in the range of 1-2.5% today. Additionally, Reliance Industries also gained over 1% and supported market rebound. Midcap and smallcap indices continued to outperform broader market as investors continued to lap-up quality names from these spaces in the backdrop of improved visibility of earnings growth. Divi's Lab, NTPC, Bajaj Finserv and Hindalco were among top Nifty gainers, while Cipla, Grasim, UPL and Eicher Motors were laggards.

Notably, high frequency key economic indicators in September in the form of GST collection, manufacturing PMI, import-export data and e-way bills continued to reflect improvement in economic activities, which bode well for corporate earnings. Further, growth in many cases started surpassing pre-pandemic levels, which offers comfort. 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 was also 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. In our view, 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, September quarter earnings and RBI policy meeting outcome 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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