Post Market views - Sep 17, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
2021-09-18 10:40:00 (Time Zone: IST)
Domestic equities witnessed high volatility today and profit booking was seen in many counters amid mixed global cues. Notably, benchmark Nifty opened with brisk gap-up and recorded fresh all-time high. However, heavy profit booking in PSU Banks, metals, pharma and realty dragged markets. Barring automobile and FMCG, most key sectoral indices saw profit booking. Additionally, midcap and smallcap stocks, which witnessed strong rebound in recent weeks, also witnessed selling pressure as Nifty midcap and smallcap indices fell over 1% today. Volatility index surged over 6% indicating unease at higher levels. Benchmark Nifty gained ~1.5% this week and around Rs4 trillion was added in investors' wealth during the week. Kotak Bank, Tech Mahindra, Bajaj Finserv and Bharti Airtel were among top Nifty gainers, while Tata Steel, Coal India, SBI and UPL were laggards.
Increasing possibility of earnings downgrade in the USA markets following sharp rise in Coronavirus daily caseload and continued reform measures undertaken by the government in India appear to have revived FIIs' interest in domestic market. An inflow of over Rs48bn in last three days from FIIs vindicates this. 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. Additionally, ease of retail inflation at 5.3% for August bodes well as this should essentially aid RBI to maintain its soft monetary policy stance to support ongoing recovery in economic momentum. In our view, 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. India is at the beginning of capex revival phase and therefore corporate earnings recovery looks sustainable and premium valuations 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 continue 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.