Post Market views - May 14, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equities were volatile today and oscillated between gains and losses. Baring FMCG, all key sectoral indices traded in red. Heavy profit booking was seen in midcap and small cap stocks. Notably, metals continued to see heavy profit booking as recent softening in international prices weighed on investors' sentiments. Asian Paints and UPL witnessed sharp uptick today after reporting robust 4QFY21 earnings. Further, ITC, Nestle and L&T were among top Nifty gainers, while Coal India, Hindalco, Tata Steel and Tata Motors were laggards. For the week, Nifty is down almost by 1% as mounting concerns over rising COVID-19 cases and higher positivity rates weighed on investors' sentiments.
While assurance of 2bn jabs to be available by Dec'21 by government, rollout of Sputnik vaccine from next week and possible joint production with global vaccine manufacturers in India offer comfort, elevated positivity rate and rising COVID-19 cases in hinterlands of the country may continue to weigh on investors' sentiments and prevent market to take any decisive up-move. Despite states are extending lockdowns / mobility restrictions in recent days, market is still factoring-in reversal in daily caseload by June end. Given contraction in daily caseload in certain large states, we believe pace of rising cases should ease in coming weeks. Investors would be keenly watching out vaccination progress and recovery rates. Additionally, concerns from rising inflationary pressure globally and increasing apprehension among investors about Federal Reserve's soft monetary stance due to sharp rise in CPI inflation may weigh on sentiments. We note that 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 initial disruption due to second wave of COVID-19. Notwithstanding some adverse impact on economic activities in 1QFY22E, 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.