Post Market views - Jan 25, 2022 - Reliance Securities

Mr Mitul Shah, Head Of Research at Reliance Securities

Domestic equities came back with strong gain to close higher, after a selloff witnessed in the 1st half of trade. Market witnessed huge volatility during the day. Nifty gained 0.8% while broader market outperformed compared to the main indices with Nifty Midcap and SmallCap increasing by 0.98% and 0.94% respectively. All sectoral indices ended higher except Nifty IT, which fell by 0.4%. Nifty PSU Bank gained the most at 4.2%, followed by Nifty Auto (+2.3%) and Nifty Bank (+2%). US equities clawed back losses and closed in green. The markets looked ahead to a busy week of corporate results, economic data and a Federal Reserve monetary policy meeting. The Nasdaq Composite ended in slightly positive territory after dropping 4.9% at session lows. The Dow recovered losses of more than 1,100 points to end nearly 100 points higher. VIX, jumped to as high as about 37.9, reaching its highest level since November 2020.

As the Budget Day coming closer, the markets are busy doing all sorts of permutations and combinations to get the big picture right. Corporate earnings, of course, will also have a bearing on the scheme of things. The earnings season has gathered pace with revenue is largely in-line with estimates, however higher commodity prices taking toll on margin and profitability to some extent. 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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