Pre-Market Views - March 31, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

US equities ended lower as concerns of rising bond yields and higher inflation once again weighed on investors' sentiments. USA 10-Year treasury yield once again moved back to 1.74%, which has also lifted US dollar and weighed on equities. Meanwhile, investors started pondering the impact of President Biden's infrastructure plan, which could be in the rang US$3-4trillion. This is most likely to be offset by hike in taxes. Biden is set to announce parts of his plan today, which will be crucial for the markets.

Domestic equities do not look to be good at the moment. A strong buying by domestic investors yesterday helped market to recovery sharply and shrugged off concerns of sharp spike in Covid-19 cases in the country. We believe that recent announcements of night curfews by various state governments and indication of lockdown by Maharashtra state government certainly do not augur well for equities. Additionally, strengthening dollar index, which already gained ~1.5% last week and surpassed 93 levels so far this week, can aggravate investors' concern in emerging markets including India. However, given the experience of 2020, spread can be controlled without putting a large scale of business restrictions. Additionally, a faster rollout of vaccination process can be helpful to contain the spread of virus. Hence, any adverse impact on business activities might not be meaningful. Further, a strong pick up in capital expenditures in FY22E, impact of new reforms announced in the budget to stimulate consumption activities and allocation for higher capital expenditures in select large state's budget for FY22E should continue to support ongoing rebound in corporate earnings. Hence, any meaningful correction in the market should only be creating an opportunity for bargain trading in quality stocks. Investors must focus on companies with strong earnings visibility and margins of safety.

Source : Equity Bulls

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