Post Market views - May 18, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equities extended gains as early sign of decline in COVID-19 daily caseload and improving prospects of faster economic recovery emboldened investors. Additionally, strong cues from Asian markets also supported today's rally. Notably, auto, IT, financials (excluding PSU banks) and RIL witnessed sharp recovery and supported market, while pharma and FMCG remained subdued. Notably, expectations of sharp improvement in volume in coming months owing to likely increase in preference of personal mobility aided automobile stocks. Notably, sharp rally in domestic markets helped investors' wealth to grow over Rs5.5 trillion in last two days. M&M, Bajaj Auto, Titan and Bajaj Finance were top Nifty gainers, while Bharti Airtel, ITC, UPL and Coal India were laggards.
We believe investors will continue to take comfort from receding fresh daily cases, which indicates that assumption of second wave of COVID-19 daily caseload peaking-out by the end of May or mid of June holds true and adverse impact of second wave should not be felt beyond 1QFY22. However, 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. 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.