Pre-Market views - July 15, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
US stocks ended mostly higher after Federal Reserve chairman continued to sound dovish and pointed that time is not right to pullback monetary policy support despite recent surge in inflation. Powell stressed that the labour market, although improving, as a long way to go towards recovering from pandemic. He also stated that low interest rates and supply constraints contributed to the housing affordability crisis, but reckless and irresponsible lending practices, that led 2008 crisis, are not happening now. 10-Year bond yield fell sharply to 1.34% reacting dovish commentary of Powell. However, recent surge in COVID-19 cases in the USA and other countries due to highly transmittable delta variant could be a near term worry for the markets.
Domestic equities look to be flat as of now. Notably, dovish remark of Federal Reserve Chairman Powell in his testimony despite surge in inflation should offer comfort to global equities including India. Apparently, benchmark Nifty appears to be consolidating in the range of 15,600-15,900 for last couple of weeks. However, we continue to believe that underlying strength of market remains intact and therefore any meaningful correction in the market should be taken as an opportunity to get in quality stocks. Visible improvement in key economic data including IIP, import-export business momentum and visible traction in overall economic activities in June indicate healthy corporate earnings for 1QFY22E despite second wave of COVID-19. IT companies have so far delivered better than expected performance on revenue lines and strong deal wins along with encouraging management commentaries augur well for the sector. In our view, progress of monsoon, 1QFY22E corporate earnings and COVID-19 positivity rates will be in focus in the near term. Further, higher government's capex and revival in industrials' capex should aid economic recovery. In our view, higher crude prices, spread of delta plus variant globally and strengthening dollar index could be a near risk for markets. 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 outperform in FY22E.