Below are Views On Indian equity markets touched their all-time highs during the first half of week ended By Shibani Sircar Kurian, Senior EVP & Head- Equity Research, Kotak Mahindra Asset Management Company
“Indian equity markets touched their all-time highs during the first half of week ended 19.02.2021. The Union budget and the corporate earnings seasons for Q3FY21 have been the key drivers for the market. The Foreign Institutional Investors continue to remain net buyers of Indian equities and have already brought in ~USD5.9bn in CY21 till date.
The Union budget clearly outlined the intention of the Government of moving towards an investment led growth strategy. While the level of fiscal deficit announced in the budget was higher than expectations, the budget was unequivocally growth focused with emphasis on capital expenditure. However, it’s not as if fiscal prudence has been thrown to the wind. Instead, the budget outlines that the Government is clearly seeking to move on the path of fiscal consolidation but over a period of time. It brought transparency to the fiscal maths even while the projected numbers on GDP growth and tax revenue appears fairly conservative. The Government also remain committed to reforms like strategic divestments including PSU banks and higher FDI in insurance. From here on, the pace of execution would be the key.
The markets also celebrated the continuation of the corporate earnings improvement in Q3FY21 after a strong outcome in Q2FY21. Nifty 50 companies reported a PAT growth of ~22% YoY following ~17% YoY growth in PAT in Q2FY21. This marks the second consecutive result season which has witnessed more upgrades in consensus estimates for FY21 and FY22 as compared to downgrades. Commentary by companies indicates that demand is sustaining even after a strong festive season and the movement in high frequency indicators supplements the view. Economic activity is back to pre-COVID levels and the fear that most of the demand improvement in Q2FY21 was led by pent up demand is also abating.
RBI’s Monetary Policy Committee (MPC) kept key policy rates on hold. The MPC also unanimously decided to continue with the accommodative stance of monetary policy as long as necessary – at least through the current financial year and into the next year – to revive growth on a durable basis and mitigate the impact of COVID-19, while ensuring that inflation remains within the target going forward. The latest reading of CPI inflation surprised positively in Jan’21, easing to 4.06% largely on account of decline in food prices. With this, CPI inflation has moved well within the range of RBI’s targeted inflation.
Trajectory of active COVID cases in India continue to decline. However, the numbers would need a close monitoring even now. The progress of the vaccination drive continues with 10mn people in India having received the vaccine.
Going forward, the key factors for the market to watch out for include a) the trend of inflation in many global commodities like crude oil and steel (b) the continuation of surplus global liquidity and low global interest rates and (c ) the trajectory of domestic corporate earnings over the next few quarters and (d ) the COVID case curve and the pace of vaccinations.”
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