Post Market views - Oct 14, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic bourses maintained northward journey with both key indices recording fresh all-time high. Notably, strong rebound in financials (especially banks) followed by IT, metals and realty supported market rally today. Expectations of strong 2QFY22 performance led by visible economic recovery and improving visibility of asset quality outlook aided banks to see sharp rebound, while strong performance beat reported by IT names like Infosys, Wipro and Mindtree led strong rebound in overall IT stocks especially in midcap IT stocks today. Notably, barring auto, most key sectoral indices traded in green today. Notably, Nifty extended gains over 2% in this week, while ~Rs6.4 trillion was added in investors' wealth during the week. Adani Ports, Wipro, Grasim and ITC were among top Nifty gainers, while Coal India, Eicher Motors, Tata Motors and HCL Tech. were laggards.

Notably, sharp contraction in CPI print at 4.35% for September despite elevated oil prices and sustained IIP growth (11.5% growth for August) certainly offer comfort. We further believe that 2QFY22 corporate earnings are going to be quite crucial for market. Strong performance beat reported by IT majors Infosys and Wipro offered comfort after subpar performance of TCS weighed on overall IT index. RBI policy meeting outcome last week was quite balanced; and it continued to sound dovish despite announcing measure of absorb excess liquidity through VRRR auctions. Further, cut in CPI inflation forecast and unchanged economic growth augured well; and market continued to cheer RBI policy meet outcome. Further, 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) and sharp rise in Securitization volumes in 1HFY22 vindicate growth momentum of the economy. Additionally, high frequency key economic indicators in September in the form of GST collection, manufacturing PMI, import-export data, railway freight and e-way bills continued to reflect improvement in economic activities, which bode well for corporate earnings. Notably, 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. 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, rise in USA bond yield and elevated energy prices. 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. 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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PostMarketViews RelianceSecurities Oct142021