Post Market views - April 12, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: Arizona, USA)
Domestic equities today reminded the bloodbath of March 2020 as record rise in COVID-19 cases in the country and possibility of lockdowns in several states dented investors' sentiments. Concerns of possible reversal in economic momentum and earnings recovery made investors risk-averse and huge sell-off led ~Rs9 lakh crore of wealth erosion today. Barring Pharma, all key sectoral indices witnessed steep correction today in the range of 2-9% with PSU Banks witnessing steepest correction to the tune of over 9%. Further, volatility index surged over 16%, which does not augur well. Dr Reddy's, CIPLA, DIVIS Lab and Britannia were top gainers, while Tata Motors, Adani Ports, IndusInd Bank and Hindalco were laggards.
Market is expected to remain volatile in the near term due to sharp increase in COVID-19 daily cases in the country (which has crossed 1.7 lakh) and possibility of large economic restrictions. Further, possibility of lockdown in large states like Maharashtra will weigh on investors' sentiments. Additionally, recent weakness in INR may also aggravate investors' concerns. However, softening of global bond yields and crude prices offered some comforts. Additionally, RBI's continued dovish stance and assurance of maintaining sufficient liquidity in the system through various tools in latest policy meeting also augur well for bond markets and will help in sustaining low cost of borrowings. We continue to 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 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.