Post Market views - May 25, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities traded in range bound today. While BFSIs witnessed some amount of profit booking after sharp recovery recorded in last couple of trading days, others traded positively. Notably, metal stocks witnessed recovery today as sharp correction in last couple of days brought investors' interest back to metal companies, which have report robust earnings performance in 4QFY21 and guided healthy performance in ensuing quarters. Notably, volatility index slipped below 19 levels today, which bodes well. JSW Steel, Asian Paints, Titan and Eicher Motors were among top Nifty gainers, while HDFC Bank, HDFC Life, IndusInd Bank and Axis Bank were laggards.

In our view, continued decline in daily caseload in second wave (fell below 2 lakh yesterday after 40 days) and improvement in recovery rates have certainly bolstered investors' confidence as this can reinvigorate sluggish economy faster. It also indicates that assumption of peaking-out by second wave 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. In our view, possible withdrawal of restrictions in a phased manner by states from next week should boost more confidence among investors. However, higher inflation globally including USA 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 2022, which might be weighing on investors' sentiments in the medium term and can be a fresh headwind for market. However, given weak dollar index, 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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