Post Market views - Oct 11, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities
2021-10-11 23:37:17 (Time Zone: IST)
Domestic equities extended gains today with benchmark Nifty and Sensex witnessing fresh all-time highs. Strong rebound in heavyweight financials in the backdrop of expectations of strong 2QFY22 earnings and possible write-back from select bad assets supported rally today. Further, auto stocks also witnessed healthy recovery led by expectations of strong festive demand in ensuing weeks. Notably, barring IT, most key sectoral indices traded in green today, while Nifty smallcap index outperformed others by recording gains of over 1%. IT stocks witnessed selling pressure today led by subpar performance reported by TCS in its 2QFY22 earnings. Volatility index hardened over 2% showing some amount of unease at the top. Tata Motors, Coal India, Maruti and Grasim were among top Nifty gainers, while TCS, Tech Mahindra, Infosys and HCL Tech were laggards.
A subpar 2QFY22 performance reported by IT major TCS weighed on IT index today. However, RBI policy meeting outcome was quite balanced; and it continued to sound dovish despite announcing measure of absorb excess liquidity through VRRR auctions. Further, expectations of CPI inflation and economic growth look reasonable, and market continued to cheer RBI policy meet outcome. Further, India's sovereign rating upgrade by Moody's Investors Services in the backdrop of persistent improvement in key economic indicators and faster ramp-up in vaccination bodes well and may aid India to remain resilient compared to global equities. Further, steady rise in disbursal of banks and NBFCs in 2QFY22 (as shown in their provisional numbers reported to exchanges) vindicates growth momentum of the economy. Additionally, high frequency key economic indicators in September in the form of GST collection, manufacturing PMI, import-export data, railway freight and e-way bills continued to reflect improvement in economic activities, which bode well for corporate earnings. Notably, growth in many cases started surpassing pre-pandemic levels, which also offers comfort. Notably, benchmark indices outperformed global markets in recent period as sustained recovery in key economic indicators and faster vaccination ramp-up with least possibility of third wave of COVID-19 hitting in a bigger way bolstered investors' confidence. Tax collection data for 1HFY21 was also quite impressive, which virtually crossed pre-pandemic FY20 numbers with a wide margin. However, investors remain on tenterhook with regards to progress on Evergrande, rise in USA bond yield and elevated energy prices. In our view, 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. In our view, festive demand, recovery in rural demand, COVID-19 positivity rates, vaccination ramp-up and September quarter earnings will be in focus in the near term. Further higher government's capex and revival in industrials' capex should continue to aid economic recovery in the medium to long term. However, liquidity driven market may take a backseat in 2022 and investors must start focusing on quality aspect of companies, in our view.