Post Market views - July 22, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equities recovered sharply as positive cues from global markets and buying at dip supported markets. Notably, financials, IT, metals, and realty witnessed strong recovery above 1%, while FMCG and IT indices remained soft. Strong buying was visible in midcap and small cap stocks also. Earnings miss reported by HUL in 1QFY22 resulted in over 2% correction in stock today, whereas UltraTech and Bajaj Auto exceeded estimates. Further, volatility index fell ~9% today and now ranges ~12. Tech Mahindra, Bajaj Finance, JSW Steel and Bharti Airtel were among top Nifty gainers, while HUL, Asian Paints, Bajaj Auto and Cipla were laggards.
Notably, mounting concerns over global growth due to recent rise in delta variant Coronavirus cases in different parts of the world have weighed on sentiments over last couple of days. However, we continue to believe that underlying strength of domestic 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 in June and satisfactory ramp-up in vaccination indicate healthy corporate earnings in subsequent quarters. Additionally, dovish remark of Federal Reserve Chairman Powell in his last week's testimony despite surge in inflation and soft bond yield in the USA in recent days offer comfort to global equities including India. In our view, spread of delta plus variant globally could remain as a near risk for markets. Further, expectations of sustained soft monetary policy stance of the RBI despite higher inflation and recent sharp drop in crude prices augur well for equities in India. 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.