Post Market views - Jan 14, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: Arizona, USA)
Domestic equities witnessed a brisk recovery from the day's low mainly led by descent rebound in FMCG and Pharma stocks. IT index has been most surprising today as profit booking was visible in many IT stocks despite strong 3Q numbers and upbeat guidance shared by the management. UPL, IndusInd Bank, TCS and BPCL were top gainers today, while HCL Tech, Axis Bank, JSW Steel and Tech Mahindra were key laggards.
We believe underlying strength of the market remains intact and any correction in the market is likely to be bought out. Sustained recovery in key economic data for Dec'20, better-than-expected 3QFY21 corporate earnings so far and upbeat managements' commentaries continue to augur well for the market. Additionally, the status of the global economy, soft monetary policy stance by global bankers, chances of higher fiscal stimulus in the USA and weak dollar will continue to attract FPIs into domestic equities. Vaccination rollouts in a large number of states from 16th Jan'21 and India's consistent improvement in recovery rates offer more comforts to domestic equities. The Union Budget is going to be the most crucial event this time, which will offer much clarity about sustainability of ongoing economic recovery. Given current premium valuations of markets (~30% premium FY22E earnings) where a number of stocks are already trading ahead of fundamentals, investors must have a cautious approach. Investment should be made only on quality stocks which have strong earnings visibility and margins of safety.