Pre-Market views - April 6, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: Arizona, USA)
USA equities witnessed sharp rebound with Dow and S&P 500 scaling fresh highs as investors continued to get comfort from steady improvement in key economic data. After seeing strong data for March, Services index for March also witnessed sharp recovery to 63.7%, which is the highest since 1977. Notably, with ramp-up in vaccination process in the USA, service sector has started opening-up faster, which bodes well for the economy. Looking ahead, investors will be keenly watching out minutes of recently concluded FOMC meeting, which is to be published tomorrow.
Domestic equities look to be muted as of now. Clearly, sharp spike in COVID-19 cases in the country and announcement of mobility restrictions by select states have dented investors' sentiments. In our view, domestic markets are expected to remain volatile in the near term until Coronavirus spread is controlled. Apprehensions among FPIs about possibility of fading earnings visibility turned them net sellers for last couple of trading days. Imposition of weekend lockdown in Maharashtra, which contribute over 13% of country's GDP and ~20% of India's industrial output, certainly does not augur well for economy. However, we still believe that weekend lockdown is unlikely to create any large supply chain issue and given experience in 2020 and possibility of further ramp-up in vaccination rollout process, spread of virus can be controlled without putting a large-scale economic restriction. Therefore, we continue to believe that any near-term possible correction in the market would be creating an opportunity of bargain trading for investors. A strong pick up in capital expenditures in FY22E, impact of new reforms announced in the budget to stimulate consumption activities and allocation for higher capital expenditures in select large state's budget for FY22E should continue to support ongoing rebound in corporate earnings. Investors must focus on quality stocks with robust earnings visibility and margins of safety.