Post Market views - June 2, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Benchmark index Nifty corrected marginally as profit booking in financials especially in private banks dragged index. In addition to private banks, IT and FMCG stocks also witnessed selling pressure. Notably, PSU banks witnessed sharp rebound today mainly led by increased visibility of fund raising by PSU banks in coming months. Further, auto and metal stocks also witnessed sharp recovery. Moreover, strong buying was seen in midcap and smallcap stocks as improved earnings visibility led by gradual withdrawal of state level lockdowns attracted investors to this space. UPL, SBI Life, Adani Ports and IndusInd Bank were top Nifty gainers, while ITC, Tech Mahindra, Axis Bank and HDFC were laggards.

Domestic equities witnessed sharp rally in recent weeks mainly led by increased optimism about of economic recovery with continuous fall in daily caseload in second wave and improvement in recovery rates. Further, beginning of gradual withdrawal of restrictions by states indicates that economic indicators should start improving from current month. Notably, a sharp 28% YoY and QoQ jump in government's expenditures in 4QFY21 (key element of 4QFY21 GDP growth) shows government's commitment to spur economic activities. Going forward, with opening-up economy at states level, government's higher allocation towards capital expenditures for FY22E should be helpful in driving economic growth in coming quarters. Further, robust Rs4.2 trillion surplus balance at RBI for government offers comfort about government's meeting its funding commitments. Additionally, various industries have also announced higher capex programme to sustain growth, which should also aid economic recovery. Therefore, 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 remains promising. Further, soft bond yields in the USA, recovery in INR and dollar index remaining comfortable in the range of 90 offer additional comfort. This along with improving prospects of earnings visibility has already resulted FIIs' flow to turn favourable in last couple of days. Investors will continue to focus on trajectory of daily caseload and vaccination ramp up in the country in the near term. While domestic equites continue to look good, 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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