Post Market views - July 27, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
(Time Zone: UTC)
Domestic equities corrected sharply from day's high as heavy profit booking in pharma weighed on benchmark index. Additionally, financials and auto remained in selling pressure. Notably, barring metals, most key sectoral indices ended in red today. Further, global cues were also not supportive with Hang Seng contracting over 4% today led by continued sell-off in Chinese tech stocks due to regulatory fears around Chinese companies. Notably, Dr Reddy's corrected sharply today after lower-than-expected performance reported by the company in June quarter earnings. Profit booking was also extended to midcap stocks, while volatility index soared over 7%. Hindalco, SBI Life, Tata Steel and SBI were among top Nifty gainers, while Dr Reddy's. Cipla, Axis Bank and Divi's Lab were laggards.
Notably, 1QFY22 corporate earnings have been strong so far and commentary of most managements also have been encouraging. However, asset quality worry for banks and NBFCs post 1QFY22 earnings cards of HDFC Banks, ICICI Banks and Axis Bank weighted on index heavyweight financials. However, asset quality of banks is likely to improve with the reopening of complete economy and faster job creation. While concerns over global growth due to recent rise in delta variant Coronavirus cases in different parts of the world continues to persist, we believe that underlying strength of domestic market remains intact and any meaningful correction in the market should be taken as an opportunity to buy. 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 testimony despite surge in inflation and soft bond yield in the USA in recent days offer comfort to global equities including India. Further, expectations of sustained soft monetary policy stance of the RBI despite higher inflation and recent 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.