Post Market views - April 27, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equities continued to shrug off rise in COVID-19 cases and benchmark indices recorded strong gain for second consecutive day. A sharp recovery in financials once again supported market rebound. Further, strong buying in Reliance Industries and metal stocks also supported rally. Almost all key sectoral indices ended in green today. In our view, short covering ahead of F&O expiry is also supporting market rally in this week. Notably, lower than expected March quarter performance led selling pressure in Maruti and HDFC Life. However, huge buying was seen in midcap and smallcap stocks today. Hindalco, L&T, Tata Steel and RIL were among top Nifty gainers, while HDFC Life, SBI Life, Kotak Bank and Maruti were laggards.
A persistent rise in COVID-19 cases across the nation and enhanced economic restrictions have dented investors sentiments over last couple of weeks. However, lower than 3.5 lakhs daily caseload at India level and sharp reduction in fresh caseload in Maharashtra yesterday offered some comfort and a further reversal in caseload should augur well for economy and markets. In our view, government will continue to handle this disaster by maintaining a fair balance between lives and livelihoods. Market is expected to remain volatile until we see a clear reversal in COVID-19 cases. Notably, enhanced economic restrictions imposed by states and government's continued focus to increase supply of vaccines and allowing vaccines at private hospitals should be able to check spread of coronavirus in coming weeks. Further, despite putting enhanced mobility restrictions by states, manufacturing and infrastructure activities have not halted yet and companied appeared to be proactive this time to convince most workers to stay back by offering basic amenities and facilities. Therefore, a large economic damage like last year is unlikely to happen. Further, cancellation of bond auctioning at higher rate by the RBI last week validates RBI's strong commitment to maintain low interest rate scenario and support economic activities. This certainly bodes well, and aids spread between earnings yield and GSec yield to remain low and thereby supporting equities. 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. 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.