Post Market views - Jan 15, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: Arizona, USA)
Domestic equities witnessed sharp pullback today with increased volatility. However, we are not surprised with today's fall as this was broadly expected as benchmark indices had been marking fresh highs for the last couple of days, which made valuations quite stretched. All sectoral indices ended in red, while the volatility index gained over 5%. PSU Banks, IT and Pharma stocks witnessed steeper fall. Tata Motors, Bharti Airtel and UPL were among top gainers, while Tech Mahindra, ONGC and HCL Tech and Hindalco were laggards.
In our view, any meaningful correction is likely to be bought out in subsequent periods as underlying strength of the market remains intact. We further believe that announcement of higher fiscal stimulus in the USA (US$1.9trillion) and soft stance of global central bankers about their monetary policies along with a weak dollar will continue to attract FPIs flow into Indian equities. Additionally, 3QFY21 earnings so far have been firm and are expected to remain strong, which along with the beginning of the vaccination drive should offer support to equities. Union Budget will be very crucial for the market as it will offer clarity about the sustainability of economic rebound. Notably, Nifty is still trading at a high premium and a large number of stocks are trading ahead of their fundamentals, hence investors must be cautious at these levels and should focus on quality companies (preferably enjoying low beta) with sound earnings potential and margin of safety.