Post Market views - April 20, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
While domestic equities witnessed a brisk gap-up opening and traded in green for most of the sessions mainly on positive sentiments after government allowed vaccination for all above 18 years old from 1st May, selling pressure in IT, Financials and FMCG counters dragged benchmark indices lower towards the final session of the day. Barring Pharma and Auto, all key sectoral indices turned into red. Pharma stocks were in focus today as announcement of opening-up 50% market for state government and private hospitals for COVID-19 vaccine created positive sentiments. Further, FMCG and Cement stocks also witnessed heavy selling pressure due to emerging concerns over rural demand. Notably, midcap and small cap stocks outperformed today as buying was seen in number of quality midcap and small cap stocks. Dr Reddy's, Bajaj Finance, HDFC Life and Tata Consumer Products were among top gainers, while UltraTech Cement, HCL Tech, HDFC and Shree Cement were laggards.
A continued spike in fresh COVID-19 cases in the country and announcements of enhanced economic restriction made by several states have clearly dented investors' sentiments and posed a threat to earnings recovery. However, announcement made by government yesterday for allowing vaccination for all above 18 years old and open market for vaccination should essentially offer some comfort as this will certainly lead to faster ramp up of vaccination programme. Further, despite announcing wider economic restrictions by several large industrial states, manufacturing and infrastructure activities have not halted, which should not lead to large economic damage like last year. However, possibility of exodus of migrant workers at large scale, supply disruption and increased COVID-19 cases in rural area can still hurt economic momentum. In our view, domestic markets may remain volatile until there is sign of reversal in new COVID-19 cases. 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. 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.