Post Market views - April 22, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities rebounded sharply after falling below 14,200 marks in a volatile trading day. Notably, sharp bounce back in Financials and favourable global cues supported market's rebound. Barring FMCG and IT, most of key sectoral indices traded positively today. Notably, after seeing sharp rally in last couple of days, profit booking was seen today in many pharma counters. Volatility index hardened further by ~3%. ICICI Bank, JSW Steel, Wipro and Tata steel were among top gainers, while Shree cement, Titan, Tata Consumers and Tech Mahindra were laggards.

A persistent rise in COVID-19 cases across the country and enhanced mobility restriction imposed by number of states are expected to remain as key drags for the market in the near term. This has certainly started posing as a threat to corporate earnings recovery. Notably, possibility of supply disruption and increased COVID-19 cases in hinterland area can further hurt economic momentum. We believe market is expected to remain volatile until we see a reversal in COVID-19 cases. Given, enhanced economic restrictions imposed by states and government's continued focus to increase supply of vaccines and allowing vaccines at private hospitals should be able to check spread of coronavirus in coming weeks. Further, despite putting enhanced mobility restrictions, manufacturing and infrastructure activities have not halted yet and companied appeared to be proactive this time to convince most workers to stay back by offering basic amenities and facilities. Therefore, given current status, a large economic damage like last year is unlikely to happen. Notwithstanding some adverse impact on economic activities for one or two months, a sharp pickup in capital expenditures in current fiscal is still on the cards. A meaningful pickup in government's capex and recovery in investment cycle are expected support corporate earnings in ensuing quarters. Hence, earnings recovery in FY22E still remains promising. Therefore, any near-term possible correction in the market should be treated as opportunity of bargain trading. Investors must focus on quality stocks with robust earnings visibility and margins of safety.

Source : Equity Bulls

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