Post Market views - April 19, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equities, which were looking resilient for last couple of days, fell sharply today on sharp spike in COVID-19 cases across the country and enhanced economic restrictions imposed by several states. Announcements of wider mobility restriction by Rajasthan and Delhi governments today dented investors' sentiments. Barring Pharma and IT, which remained resilient, all key sectoral indices witnessed sharp correction. Financials and Automobiles witnessed steeper correction today. Notably, volatility index soared by over 11%, which does not augur well. Investors' wealth got eroded by over Rs3 trillion today. Britannia, Dr Reddy's, Infosys and Wipro were among top gainers, while Adani Ports, Powergrid, IndusInd Bank and Hero Motocorp were laggards.
A persistent record rise in COVID-19 daily cases (already crossed 2.7 lakh) and possibility of wider economic restrictions by several states have weighed on investors' sentiments. Further, deteriorating COVID-19 recovery rates at 86% and healthcare falling short to treat patients to the best levels are making things scary, which can further aggravate investors' concerns. However, government's continued endeavor to expedite vaccination process by increasing supply of vaccines in the country and indication of no nationwide lockdown have offered some comfort. In our view, domestic markets may remain volatile until there is sign of reversal in new COVID-19 cases. However, current level of mobility restrictions imposed at different states and government's focus to improve supply of vaccine in the country should be helpful to contain outbreak in coming weeks and essentially should not lead to large economic damage. Notwithstanding some adverse impact on economic activities for one or two months, a sharp pickup in capital expenditures in current fiscal is still on the cards. Further, softening of global bond yields, normal monsoon forecast and RBI coming to rescue of INR slide should offer comfort to investors. A meaningful pickup in government's capex and recovery in investment and consumption cycle are expected support corporate earnings in ensuing quarters. Hence, earnings recovery in FY22E still remains promising. Therefore, any near-term possible correction in the market should be treated as opportunity of bargain trading. Investors must focus on quality stocks with robust earnings visibility and margins of safety.