Post Market views - Oct 8, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities extended gains mainly on sharp rebound in IT stocks followed by PSU Banks. Further, strong rebound in Reliance Industries led by announcement of launch of 7-Eleven stores by retail arm and possible increase in index weightage post completion of final payment of rights issue in November also aided market rebound. IT stocks were in focus today ahead of TCS numbers. Additionally, RBI policy outcome was favourable for market, wherein RBI continued to sound dovish and remained committed to support ongoing pickup in economic activities. Barring pharma, realty and FMCG, most key sectoral indices traded in green today, while Nifty smallcap index was outperformer today by recording gain of over 1%. Notably, Nifty gained over 2% for the week, while around Rs7 trillion was accumulated in investors' wealth during the week, which is heartening. Reliance Industries, Wipro, Tata Motors and Infosys were among top Nifty gainers, while SBI Life, Shree Cement, Dr Reddy's and NTPC were laggards.

RBI policy meeting outcome was quite balanced; and it continued to sound dovish despite announcing measure of absorb excess liquidity through VRRR auctions. Further, expectations of CPI inflation and economic growth look reasonable, and market continued to cheer RBI policy meet outcome. Notably, India's sovereign rating upgrade by Moody's Investors Services in the backdrop of persistent improvement in key economic indicators and faster ramp-up in vaccination bodes well and may aid India to remain resilient compared to global equities. Further, steady rise in disbursal of banks and NBFCs in 2QFY22 (as shown in their provisional numbers reported to exchanges) vindicates growth momentum of the economy. Further, 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 also 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 rise in USA bond yield. 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 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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PostMarketView RelianceSecurities Oct82021