Post Market views - May 6, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equities extended gain for second consecutive day mainly on positive cues from global markets and sharp rebound in IT and Auto stocks. Robust earnings reported by Tata Steel and improving visibility of margins outlook led Metals stocks to remain in focus today. Notably, baring Pharma and PSU Banks, most key sectoral indices traded in positive territory. Volatility index softened over 1% for third consecutive day and fell below 22 levels. Hindalco, Wipro, Hero Motocorp and Tata Motors were among top Nifty gainers, while UPL, Powergrid, ONGC and Sun Pharma were laggards.
While several states had started showing sign of reversal in daily caseload in last couple of days, sharp rise in daily cases again yesterday to 4.12 lakh raises concerns. Notably, market is still factoring-in reversal in daily caseload by the end of May or mid of June and any sign of absence of reversal within this period will dent investors' sentiment. On the positive side, record GST collection of Rs1.41 trillion for April'21 and steady manufacturing PMI data for April offer comfort, which indicate that economic activities were not hit massively in April. Further, liquidity support measures announced by the RBI augurs well for lenders and economy. We further believe that announcement of second tranche of Rs350bn purchase of government's bond under G-SAP 1.0 on 20th May'21 is likely to result in softening of bond yields, which also bodes well in terms of low cost of funding. In our view, investors would be keenly watching out vaccination progress and recovery rates. 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. Notably, management commentaries of various companies have so far been encouraging despite seeing some initial disruption due to second wave of COVID-19. 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.