Post Market Views - Jan 18, 2022 - Reliance Securities

Mr Mitul Shah, Head Of Research at Reliance Securities.

Domestic equities closed lower after heavy selling witnessed in the last hour of trade. Nifty closed 1% lower after positive opening. The broader market underperformed main indices. Nifty MDCAP 50 declined 2.3%, while Nifty SMLCAP 50 index was down 2.5%. Most sectoral indices ended negative. Nifty Reality declined the most at 2.9%, followed by Nifty Auto (-2.7%) and Nifty Metal (-2.6%). US markets were closed on Monday in observance of the Martin Luther King Jr. holiday. The 10-year Treasury yield rose five basis points to 1.82%, which would be a two-year high. The two-year yield topped 1%. China's central bank cut its one-year lending rate by 10 basis points to 2.85%, the first cut since April 2020. That monetary push comes amid a slew of Chinese economic data. China's economy expanded 4% YoY in the fourth quarter, better consensus view of 3.3% but down from Q3's 4.9% pace. GDP expanded 8.1% for the full year. December industrial production climbed 4.3%, slightly better than forecasts. But retail sales grew just 1.7%, vs estimates for 3.8%.

India appears to be better-placed in terms of handling COVID compared to other countries throughout the pandemic, be it the first wave, second wave, Delta variant or the ongoing Omicron on the basis of which we expect fastest revival from the current slowdown along with similar strong bounce-back in the market. In past we have observed that volatility in market persists till the announcement of first rate hike by Fed, post that it settles down and flow in equities resumes. Equities would continue with the outperformance with double-digit returns. Our year-end 2022 target for Nifty is 20,000 at 22x FY24E earnings. We expect Nifty to enjoy premium valuation for the next 1-2 years on the back of higher earnings CAGR (before reaching stable earnings pace of growth), as India becomes a preferred destination for global manufacturing, going ahead. This trend would continue over the next 4-5 years, supported by China+1 policy and the government's support for various industries. We believe that an all-round calibrated economic recovery is on the cards, though the timing remains highly uncertain. Sectors like IT Services, Engineering, Capital Goods and EV ecology would continue to be in focus in 2022. Automobile is also another promising sector on the back of likely demand revival, better supply and commodity softening. Recently rising Covid cases in India is of concern now and how it would shape up in coming days would key deciding factor for market trend in the month. We would be monitoring situation on recent Covid surge and Omicron issue.

Source : Equity Bulls

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