Post Market views - Aug 18, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic benchmark indices, after witnessing record high gave up all gains and fell to negative territories as selling pressure in heavyweight financials especially private banks dragged market. Notably, heavyweight HDFC Bank witnessed brisk rebound after RBI allowed the bank to issue fresh credit cards, while selling pressure in financials dragged the HDFC Bank also. In addition to financials, metals, auto and realty stocks also remained under pressure. However, midcap stocks witnessed some positive action today after sharp correction in last couple of days, while volatility index also softened ~3%. Eicher Motors, UltraTech Cement, Bajaj Finance and Adani Ports were among top Nifty gainers, while Kotak Bank, SBI Life, ICICI Bank and Hindalco were laggards.

Notably, benchmark Nifty and Sensex have been quite upbeat in recent weeks, while heavy selling pressure in midcap and smallcap stocks remained visible. However, considering improved visibility of sustained earnings growth in subsequent quarters, a meaningful correction in quality midcap names should be bought. Given sharp improvement in key economic indicators like GST collection, auto sales volume despite supply disruption, improvement in collection efficiencies of MFIs and other high frequency indicators like e-way bills, power consumption. strong import-export growth in July, etc. indicate sustainable rebound in corporate earnings in subsequent quarters. This should aid market to sustain premium valuations. Further, contraction in July CPI at 5.6% offers comfort as it went below RBI's target range of 2-6%, which should offer space to RBI to maintain its soft monetary policy stance in subsequent quarters as well. This certainly augurs well for corporate earnings. While concerns over global growth due to recent rise in delta variant Coronavirus cases in different parts of the world continues to persist, we believe that underlying strength of domestic market remains intact. In our view, progress of monsoon, festive demand and COVID-19 positivity rates will be in focus in coming days. We note higher government's capex and revival in industrials' capex should aid economic recovery. Investors must focus on quality stocks with robust earnings visibility and margins of safety.

Source : Equity Bulls

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