Post Market views - May 21, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities recovered sharply today mainly led by strong rebound in financials. Steady earnings reported by BFSIs including SBI today and emerging clarity about asset quality in the backdrop of receding daily caseload in second wave aided financials to rebound today. Baring pharma, buying momentum was seen across all sectors. Further, volatility index softened further and tending below 20 marks. Notably, visible decline in daily caseload (daily cases remaining below 3 lakh during the week) has bolstered investors' confidence, which aided Nifty to record ~3% weekly gain and resulted in investors' wealth to grow approximately by Rs8 trillion during the week. SBI, IndusInd Bank, HDFC Bank and ICICI Bank were top Nifty gainers, while Dr Reddy's, Eicher Motors, Powergrid and Grasim were laggards.

As second wave of COVID-19 appears to be weakening, assumption of second wave of COVID-19 to peak-out by the end of May or mid of June holds true and adverse impact of second wave should not be felt beyond 1QFY22. Investors will continue to focus on trajectory of daily caseload and vaccination ramp up in the country in the near term. However, minutes of FOMC meeting indicates diversions among members' view about higher inflation and accommodative stance and ECB's warning toward potential bubble in financial assets do not bode well for global equities including India. This raises concerns about possible taper tantrum in early 2022, which is also expected to weigh on investors' sentiments in coming week and can be a fresh headwind for market. However, given weak dollar index (below 90 levels now), recent recovery in INR and emerging clarity over second wave of COVID-19, FPIs flow is expected to turn favourable again after seeing recent weeks of outflows. Further, investors in domestic equities will focus more on trajectory of corporate earnings in coming quarters. Notwithstanding some adverse impact on economic activities in 1QFY22E, a sharp pickup in capital expenditures in current fiscal is still on the cards. 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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