Post Market views - April 7, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: Arizona, USA)
Domestic equities rebounded sharply today after favourable outcome from RBI's policy meeting. RBI sounded more dovish this time and showed its strong commitments once again towards sustaining economic momentum by way of ensuring proper liquidity in the system through various tools. Further, its forecast towards inflation and growth remains mostly unchanged despite recent surge in freight cost and input prices. All key sectoral indices traded in green with sharp recovery in Financials supported benchmark indices. Additionally, strong buying in midcap and smallcap stocks remained visible. JSW Steel, SBI, SBI Life and Britannia were among top gainers, while Adani Ports, UPL, Titan and Tata Consumers were laggards.
Given sharp rise in Coronavirus cases in the country and resultant mobility restrictions in several states, domestic equities are expected to remain volatile in the near term. While we believe that weekend lockdowns and night curfews are unlikely to create any major issue with regards to supply chain and demand disruption in the near term, prolonged restrictions and more states taking such measures may create some disruption in coming months. However, softening of bond yields and contraction in crude prices in recent days have offered some respite to markets. Further, RBI's continued dovish stance and assurance of maintaining sufficient liquidity in the system through various tools also augur well. However, weakening INR could be a near term concern for the markets. We believe that given experience in 2020 and possibility of further ramp-up in vaccination rollout process, spread of virus can be controlled without a large-scale of economic damage. Therefore, any near-term possible correction in the market should be treated as opportunity of bargain trading. 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.