Post Market views - Sep 14, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
2021-09-14 16:55:23 (Time Zone: IST)
Domestic equities witnessed modest rebound today with benchmark Nifty recording fresh all-time high amid mixed global cues. Notably, Hang Seng fell over 1% today mainly on growing concerns from Chinese economy after China ordered lockdown in South-Eastern province of Fujian due to COVID-19. Strong buying in private banks and rebound in automobile stocks aided domestic market. Barring FMCG and Metal, most key sectoral indices traded in green. Notably, Nifty Media index gained ~12% mainly led by sharp rally in Zee Entertainment following growing expectations of improvement in corporate governance standard after large investors sought the ouster of select directors of the company. Additionally, strong buying in midcap and smallcap stocks remained visible, while volatility index contracted ~3% that augurs well. IndusInd Bank, Hero Motocorp, HCL Tech and Kotak Bank were top Nifty gainers, while Nestle, HDFC, BPCL and UltraTech Cement were laggards.
Notably, ease of retail inflation at 5.3% for August offers comfort as this should essentially aid RBI to maintain its soft monetary policy stance to support ongoing recovery in economic momentum. Unlike developed markets, faster ramp-up in vaccination process and relatively lower daily caseload offer India an edge over other markets and therefore domestic bourses are resilient despite pressure in global equities. Additionally, we continue to believe that 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. Further, July month IIP at 11.5% (higher than consensus estimate) almost reaching to pre-pandemic level also offers comfort. While 1QFY22 GDP growth 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. In our view, 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 and continued traction in PLI schemes augur 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.