The stock market has been range-bound in July, with Nifty hovering in the range of 15600 -15800. Quarter numbers (Apr-May-June-21) were better than expected, led by IT, Cement & Consumer sector, while the Banking sector has been the worst performer (with below par results).
Overall View: after a strong FY21, earnings for FY22 have begun on a healthy note. 1QFY22 earnings are progressing in line thus far. The damage from the second COVID wave and the consequent lockdowns in April/May’21 has been much lesser than that from the 1QFY21 national lockdown. Management commentaries across the board suggest an improved demand environment post-June ’21, led by the easing of restrictions, lower active COVID-19 cases, and a pickup in vaccinations. However, the impact of rising commodity costs and, in general, higher inflation is reflected in the P&L. Asset quality in Financials has expectedly weakened sequentially. We estimate corporate earnings to continue to recover, as the underlying economy opens up, with progressively higher vaccination trends.
FIIs have been net sellers in the last 4 consecutive months, while DIIs are net buyers, a matter of concern, but expecting FIIs buying to resume soon. The IPO market is hot with bumper listings of Zomato, Clean Science & Technology, Tatva Chintan & GR Infra. Next few months, many IPOs are lined up – Devyani International (KFC / Pizza Hut), Policy Bazaar, Car Trade, Fino Payments Bank, Star Health Insurance, Paytm, Mobikwik, NSE, etc.
The RBI’s MPC meeting is scheduled for the coming week, however, the expectation is that the RBI too, just like the Fed, will not hamper the repo rates, so as to continue supporting impacted sectors with cheaper credit.
Positives: Healthy Q1 Earnings, High Liquidity, Reducing COVID Nos, High Vaccinations, Good Monsoons, easing of Restrictions, long Festive season, and Pent-up demand buying.
Negatives: Possibility of third-wave due to highly dangerous delta virus, and rising inflation.
Clearly, the Positives outweighs the negatives. Therefore, one can look at shifting a chunk of the debt allocation to equity, in case the market corrects further.
Photo Credit: kbc.be