Pre-Market views - April 9, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: Arizona, USA)
US equities extended gains with S&P 500 recording fresh high mainly on strong buying on technology stocks. Investors continued to take comfort from the statements of Fed Chairman Powell. In a webinar hosted by IMF on Global Economic Outlook yesterday, Mr. Powell once again repeated his expectations that rise in inflation this year would be temporary. Notably, 10-year USA treasury yield has been trending down since the beginning of April and now stands at 1.63%, which offers comfort to equites. In our view, progress on approval of huge infrastructure programme and corporate tax rates are likely to be in focus in coming weeks.
Domestic equities do not look to be inspiring at the moment. While favourable RBI's policy meeting outcome and assurance of no nationwide lockdown from government helped domestic equities to rebound in recent trades, continued sharp rise in Coronavirus cases in the country is expected to keep market volatile in the near term. Mobility restrictions at local levels and several states started taking such measures will continue to weigh on investors' sentiments. Further, recent weakness in INR may also aggravate investors' concerns and adversely impact FPIs flows. However, softening of global bond yields and crude prices offered some comforts. Notably, RBI's continued dovish stance and assurance of maintaining sufficient liquidity in the system through various tools also augur well for bond markets and will help in sustaining low cost of borrowings. We further 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.