Post Market views - June 7, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equities extended gain with benchmark Nifty recording fresh all time high as sharp decline in daily caseload and states started easing business curb lifted sentiments. A sharp rebound in private banks, auto and IT supported market today, while metals and pharma witnessed profit booking. Notably, midcap, and small stocks were again in focus today as investors appeared to be lapping up midcap and smallcap stocks in the backdrop of improved visibility of earnings recovery. Cement stocks also witnessed sharp recovery today after government's indicated higher infrastructure spending in coming months. Adani Ports, Powergrid, Tata Motors and NTPC were among top Nifty gainers, while Bajaj Finance, HDFC, Dr Reddy's and Divi's Lab were laggard.
Benchmark indices remains buoyant as continued decline in daily caseload in second wave, improving recovery rates and beginning of gradual withdrawal of economic restrictions by states lifted investors' sentiments. Further, RBI's commitment towards supporting economy by ensuring sufficient liquidity in the system and maintaining low interest rate scenario augurs well. GST collection remaining above Rs1 lakh crore for May'21 despite sharp hit on economy due to state level restrictions offers comfort, which essentially indicates that economic loss due to second wave is not as severe as anticipated. Going forward, with opening-up economy at states level, government's higher allocation towards capital expenditures for FY22E should be helpful in driving economic growth in coming quarters. Additionally, various industries have also announced higher capex programme to sustain growth, which should also aid economic recovery. Therefore, 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 remains promising. Further, soft bond yields in the USA, recovery in INR and dollar index remaining comfortable in the range of 90 offer additional comfort. This along with improving prospects of earnings visibility has already resulted FIIs' flow to turn favourable in recent weeks. Investors will continue to focus on trajectory of daily caseload and vaccination ramp up in the country in the near term. While domestic equites continue to look good, investors must focus on quality stocks with robust earnings visibility and margins of safety. In our view, sectors considered to be major beneficiaries of capex revival are likely to be back in focus in coming weeks.