Post Market views - Jan 13, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: Arizona, USA)
Domestic equities were volatile today and gave-up early gains as profit booking was visible in a large number of stocks. Barring Auto, PSU Banks and FMCG, most of the key sectoral indices ended in red today. Notably, volatility index has been soaring for last four trading days and today it surged over ~4% before settling at lower level indicating a kind of uneasiness at the top. M&M, SBI Bank, Adani Ports and NTPC were among top gainers, while HDFC, Shree Cement, Bajaj Finance and UPL were laggards.
While contraction Nov'20 in IIP data indicates more measures by FM in the budget to stimulate economic activities, better than anticipated softening in CPI data for Dec'20 negates the looming concerns over low interest rate scenarios. We continue to believe that that a sharp rebound in high frequency key economic data for Dec'20 indicates demand revival, which bodes well for the markets. Further, 3QFY21 corporate earnings are progressing well and are expected to sustain growth, which along with weak dollar and soft monetary policy of global bankers should continue to attract FPIs into domestic equities. Additionally, while hardening USA bond yield may be a cause of worry in the near term, announcement of large fiscal stimulus in coming weeks will offer further support to equities in emerging markets including India. However, as markets are trading at all time highs with valuations premium of over 29% and a large number of stocks are already trading ahead of their fundamentals, investors must be cautious at these levels. Investment should be made to quality companies, which have strong earnings visibility with strong business model and margins of safety.