Post Market views - Aug 30, 2021 - Mr. Binod Modi, Head Strategy at Reliance Securities

Domestic equities recovered sharply on strong global cues with benchmark Nifty is just one notch away to surpass 17,000 mark. Notably, dovish commentary from federal reserve chairman in Jackson Hole Symposium lifted investors' sentiments globally. Financial and metals witnessed sharp recovery today. Notably, barring IT, most key sectoral indices traded in green with decent rebound. Strong buying in Midcap and smallcap stocks continued today as recent correction made risk reward propositions favourable for investors. Divi's Lab, Axis Bank, Tata Steel and Coal India were among top Nifty gainers, while Tech Mahindra, Infosys, Eicher Motors and TCS were laggards.

Notably, no mention about actual timeframe for reversal of US$120bn monthly asset purchase programme by Mr. Powell and indications of no interest rate hike in the medium term essentially show that taper tantrum is still not in the sight in the near term, which augurs well for global equities. In our view, winding down of asset purchase programme by the Federal Reserve might not happen before Nov'21, which is broadly being factored by market. We further believe that India is at the beginning of capex revival phase and therefore corporate earnings recovery looks sustainable. Notably, a 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. Additionally, government's focus to improve credit growth through credit outreach programme augurs well for domestic economy. Additionally, minutes of MPC meeting held in the beginning of this month continues to show RBI's commitment to ensure policy support to sustain economy recovery despite select members showing some apprehensions about high inflation and pitching for gradual normalization in ultra-loose monetary policy. 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. However, considering current macro scenario, liquidity driven market rally might take a backseat in coming months and therefore investors should be advised to focus on quality companies with strong fundamentals. In our view, festive demand, recovery in rural demand and COVID-19 positivity rates will be in focus in the near term. We note higher government's capex and revival in industrials' capex should aid economic recovery.

Source : Equity Bulls

Keywords