Post Market views - June 18, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
It was an extreme volatile trading day for domestic equites with benchmark Nifty recovering sharply from day's low. Barring FMCG and Pharma, all key sectoral indices traded in red. Metals, PSU Banks, and Realty indices witnessed steeper contraction. Further, heavy profit booking was seen in midcap and small cap stocks after sharp rally in recent weeks. Adani Ports, HUL, Bajaj Auto and HDFC Life were among top Nifty gainers, while Coal India, ONGC, JSW Steel and Powergrid were laggards. Nifty corrected around 0.8% for the week as slight hawkish stance of federal reserve in latest FOMC meeting weighed on sentiments, which led domestic investors' wealth to erode by over Rs4 trillion during the week.
Notably, weak global cues led Indian equities to see profit booking in last couple of days. In our view, more than 100% improvement advance tax / direct tax collections in 1QFY22 so far indicates sustainable corporate earnings in coming quarters along with strong financial resources for the government to maintain budgeted fiscal deficit. Further, ease of business curbs by states led by sharp decline in COVID-19 positivity rates and reduction in daily caseload continues to offer comfort to investors. Notably, government's plan to expedite development programmes to push economic activities and visible pickup in business activities are expected to result in sharp improvement in high frequency key economic indicators from current month onwards. Investors will be watching out the progress on daily caseload, vaccination ramp-up and monsoon progress in the near term. In addition to high government's capex, 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. 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. However, depreciating INR in recent period (which crossed Rs74), higher crude prices and higher inflation could be near term overhangs for the market.