Post Market views - Sep 3, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
2021-09-03 18:18:52 (Time Zone: IST)
Domestic equities extended gains mainly led by rebound in metal and automobile stocks. Further, sharp rise in RIL supported Nifty. Notably, barring financials and FMCG, most key sectoral indices ended in green today. Further, buying remained visible in midcap and smallcap stocks, while volatility index inched up ~2%. Notably, Nifty gained ~3.5% this week mainly led by revival in FIIs flow following dovish commentary from Fed chairman Powell in Jackson Hole Symposium last week and sustained domestic flows, while around Rs10 lakh crore was accumulated in investors' wealth during the week. RIL, ONGC, Eicher Motors and IOC were top Nifty gainers, while HDFC Life, Cipla, Bharti Airtel and Axis Bank were laggards.
Notably, high frequency key economic indicators for Aug'21 in the form of GST collection, railway freight, auto sales volume despite semiconductor issues, power consumption, import-export data and fuel volumes indicate a sustained economic recovery on YoY comparison. While 1QFY22 GDP expanded 20.1% indicating a sharp recovery, there has been sharp contraction in sequential comparison due to second wave of COVID-19 and growth is still lagging from pre-pandemic level. Hence, economy still needs policy support from government and RBI, which is likely to persist. Additionally, low fiscal deficit at Rs3.21 trillion (21.3% of budgeted) as of July'21 reflects that government can spend more in coming months to sustain economic activities. These indicate a sustainable earnings growth in subsequent quarters. We further believe that India is at the beginning of capex revival phase and therefore corporate earnings recovery looks sustainable and premium valuation might sustain. Additionally, government's focus to improve credit growth through credit outreach programme augurs well for domestic economy. 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. In our view, festive demand, recovery in rural demand and COVID-19 positivity rates will be in focus in the near term. We note higher government's capex and revival in industrials' capex should aid economic recovery. However, liquidity driven market may take a backseat in 2022 and investors must start focusing on quality aspect of companies, in our view.