Post Market views - July 19, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equites fell sharply today on weak global cues as concerns over recent rise in fresh COVID-19 cases in various part of the world including USA weighed on sentiments. Financials have witnessed steeper correction today as subpar performance delivered by HDFC Bank in 1QFY22 and visible deterioration in asset quality created apprehension among investors about Banks and NBFCs having exposure in retail and SME. Further, auto and metal indices also corrected over 1% today. Baring realty and pharma, most key sectoral indices witnessed contraction. Profit booking was visible in midcap and small cap stocks also, while volatility index hardened over 8% today. Divi's Lab, BPCL, NTPC and Nestle were among top Nifty gainers, while HDFC Bank, HDFC Life, IndusInd Bank and Axis Bank were laggards.
While subpar June quarter performance reported by HDFC Bank during weekend along with visible stress in asset quality weighed on overall financials today, positive outcome from OPEC meeting, wherein ease of production cut was agreed fully by Sept'22, should offer comfort to emerging markets including India. Notably, dovish remark of Federal Reserve Chairman Powell in his testimony despite surge in inflation and soft bond yield in the USA in recent days offered comfort to global equities including India. In our view, spread of delta plus variant globally could be a near risk for markets. 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. Further, expectations of sustained soft monetary policy stance of the RBI despite higher inflation augur well for equities. 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. 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.