Post Market views - May 27, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities remained resilient and traded in range bound amid expiry led volatility. IT stocks remained in focus for second consecutive day as sustained visibility of earnings momentum attracted investors' interest back to this space. Further, banks, metals and auto also were in focus. Notably, short coverings also have supported momentum in various counters. Buying momentum remained visible in midcap and smallcap stocks and they have outperformed benchmark indices. Volatility index slipped over 2% today bur trending above 20 levels. Shree Cement, SBI, Axis Bank and Wipro were among top Nifty gainers, while HDFC, Bajaj Finance, ONGC and IOC were laggards.

With market cap of domestic equities crossing US$3 trillion and market-cap to GDP over 110%, there is apprehension among investors about the sustainability of market rally. With no doubt, domestic equities have been mostly resilient throughout second wave of pandemic as absence of national lockdown, availability of vaccine and continued industrial/manufacturing/infrastructure activities albeit at slow pace with favourable supply chain offered comfort to investors. A sharp drop in daily caseload in second wave and improvement in recovery rates have emboldened investors in last one week. Further, robust 4QFY21 earnings and favourable commentaries from managements also lifted sentiments. Going forward, likely announcement of phased withdrawal of state level lockdowns by states in coming weeks and recovery in economic activities can potentially aid market to sustain rally in the near to medium term. Additionally, recent softening in bond yields in the USA and dollar index remaining in the range of 90 marks offer additional comfort, which can essentially lead FIIs' flow to turn favourable. 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. Investors must focus on quality stocks with robust earnings visibility and margins of safety. In our view, sectors considered to be major beneficiaries of capex revival are likely to be back in focus in coming weeks.

Source : Equity Bulls

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