Post Market views - Feb 19, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: Arizona, USA)
Domestic equities fell sharply today for the third consecutive day as profit booking across the sectors dragged benchmark indices. Bank and Auto Indices corrected sharply by 2-3%, while PSU Banks index witnessed steeper correction by over 5% after registering back-to-back gains in last five trading days. IT and FMCG stocks appeared bit resilient today. Notably, volatility index soared by over 4% indicating a kind of uneasiness at these levels. All in all, it was a broad-based profit booking day. UPL, GAIL, HUL and Dr Reddy were top gainers, while ONGC, Tata Steel, Tata Motors and SBI were laggards.
A pullback in broad index was quite visible in last three days. However, investors continued to show interest in midcap and smallcap stocks given improved earnings outlook. Undoubtedly, budget succeeded to offer clarity about the sustainability of ongoing corporate earnings rebound in subsequent fiscals. Huge capital expenditure program and reforms announced in the budget to expedite infrastructure activities in the country are likely to support many ancillary industries and job creation. Further, likely pick up in private capex as under PLI schemes and low taxation regime also augurs well. In our views, infrastructure, industrials, engineering, building materials, banks and select auto stocks are likely to outperform in the medium to long term perspective as these are the key beneficiary of higher capital expenditures. However, current valuations of market are factoring a large portion of earnings rebound and therefore investors need to be cautious at these levels and must focus on quality names with robust earnings visibility and margins of safety. A bottom-up investment approach should be preferred to generate incremental alpha.