Post Market Views - May 17, 2021 - Binod Modi, Head Strategy, Reliance Securities
(Time Zone: UTC)
Domestic equities witnessed strong rebound today as robust 4QFY21 earnings and early sign of decline in second wave of daily caseload bolstered investors' confidence. A strong recovery in financials followed by auto and metals supported market's rally today. Notably, defensive sectors like IT, Pharma and FMCG appeared soft today. It was a broad-based rally today, wherein midcap and small cap stocks equally witnessed sharp uptick. Volatility index declined steeply by 5% and contracted below 20. We note that today's strong rebound in domestic market helped investors' wealth to grow almost ~Rs3 trillion in a single day. IndusInd Bank, SBI Bank, ICICI Bank and UPL were among top Nifty gainers, while Cipla, L&T, Bharti Airtel and SBI Life were laggards.
A consistent reduction in COVID-19 daily caseload, which fell below 3 lakh on Sunday, certainly augurs well for markets. It indicates that prediction of receding second wave of COVID-19 by the end of May or mid of June holds true and adverse impact of second wave should not be felt beyond 1QFY22. However, rising cases in hinterland parts of the country and rising fatality remain a worry. 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. Investors will continue to focus on trajectory of daily caseload and vaccination ramp up in the country in the near term. We note that despite putting enhanced mobility restrictions by states, manufacturing, and infrastructure activities have not halted yet and companies appeared to be proactive this time to convince most workers to stay back by offering basic amenities and facilities. Further, supply chain has so far been comfortable. 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.