Post Market views – Oct 6, 2021 – M. Binod Modi, Head Strategy at Reliance Securities
National stock exchanges today contracted mainly on profit reservation ahead of the results of the RBI monetary policy meeting and 2QFY22 company profits. Additionally, weak global signals also weighed on sentiment today. Big profits were recorded in metals, pharmaceuticals, IT and autos stocks. Notably, excluding energy, most of the key sector indices ended up in the red today. Additionally, mid- and small-cap stocks, which have remained outperforming in recent days, also posted profits in tandem with large-cap stocks. The volatility index has hardened by more than 5% today, reflecting unease at the top. ONGC, Tata Consumers, UPL and Britannia were among Nifty’s top winners, while Hindalco, SBI Life, JSW Steel and Tata Steel were behind.
Notably, the upgrading of India’s sovereign rating by Moody’s Investors Services amid continued improvement in key economic indicators and acceleration of immunization bodes well and could help India remain resilient relative to global equities. In addition, the constant increase in disbursements from banks and NBFCs during fiscal year 2QFY22 (as shown by their provisional figures communicated to the stock exchanges) justifies the growth dynamic of the economy. However, the sharp rise in oil prices is a further surplus of Indian stocks, which can essentially lead to further tightening of inflation and negatively impact the government’s budget calculations. However, high-frequency key economic indicators in September in the form of GST collection, manufacturing PMI, import-export data and electronic invoices continued to reflect improving economic activities, which is good. bodes well for corporate profits. Plus, in many cases, growth has started to exceed pre-pandemic levels, which also provides comfort. Notably, benchmarks have outperformed global markets in the recent past as a sustained recovery in key economic indicators and acceleration in vaccination with less possibility of third wave COVID-19 hitting more heavily have strengthened investor confidence. Notably, the tax collection data for 1HFY21 was also quite impressive, which practically crossed the pre-pandemic FY20 numbers by a wide margin. However, investors remain in suspense about the advance of Evergrande and the raising of the debt ceiling in the USA. In our view, India is at the start of the recovery phase in capital spending and as a result the recovery in corporate earnings appears to be sustainable and premium valuations may hold. In addition, the focus by the government on improving credit growth through a credit awareness program and the continued traction of PLI programs bodes well for the national economy. While concerns about global growth due to the recent increase in cases of the delta variant coronavirus in different parts of the world persist, we believe the underlying strength of the domestic market remains intact. In our opinion, festive demand, the resumption of rural demand, COVID-19 positivity rates, the ramp-up of vaccination, the results of the September quarter and the results of the RBI policy meeting will be at the center of the discussions. short-term concerns. The increase in government investment spending and the resumption of industrial investment spending should continue to promote economic recovery in the medium and long term. However, the liquidity-driven market could pull back in 2022 and investors need to start focusing on the quality aspect of companies, in our view.
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