Post Market views - June 11, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equities extended gains with key benchmark indices Nifty and Sensex recording fresh all-time highs. A sharp rebound in IT, metals and RIL supported benchmark indices. Expectations of sharp recovery in economic activities and indications from government to rollout capital expenditures programme for FY22E faster lifted sentiments. However, financials and realty witnessed some amount of selling pressure. Notably, volatility index declined over 6% today and fell below 14. Coal India, Tata Steel, JSW Steel and Dr Reddy's were among top Nifty gainers, while L&T, Adani Ports, Divi's Lab and SBI Life were laggards. For the week, benchmark Nifty recorded weekly gain of ~1% and investors' wealth increased by Rs3 trillion.
Notably, improving business environment from the beginning of June'21 led by phased withdrawal of business curbs by the states has lifted sentiments among investors. Further, possibility of extension of government's stimulus programme with enhanced ECLGS and faster rollout of high capex programme are expected to push economic activities faster. We believe high frequency key economic indicators are likely to see remarkable improvement from current month onwards, which should sustain premium valuations of the market. 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 last couple of days. 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. Given higher inflation in the USA, any discussion about possible rollback of US$120bn monthly asset purchase programme in next week FOMC meeting could be a near term risk.