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Equity markets ended near days’ high following RBI’s announcement to support economy. Nifty/Sensex rose 121/424 points (+0.8%/+0.9%) to close at 14,618/48,678. The broader markets too gained with Nifty MidCap 100/Nifty Smallcap 100 up +0.9%/+1.0% respectively. Except for Realty (-1.0%) all other sectors closed in green. Pharma was the biggest gainer – up +4.1%, followed by Banks, Financials and IT, each gaining more than 1%.   

Global cues were mixed as investors continue to monitor corporate earnings. On the domestic side, Nifty ended on a positive note after RBI Governor Shaktikanta Das launched the second round of loan restructuring and other relief measures to counter covid second wave. Pharma gained the most as relief measures announced by RBI involved provision of term liquidity facility of Rs50,000 crore on priority basis for healthcare sector. Apart from this, the announcements included a special Rs10,000 crore long-term repo operation to support small finance banks to on-lend to MSEs, and a resolution framework 2.0 for individuals, small businesses and MSMEs, which lifted the banking stocks. Sun Pharma, UPL, Axis Bank, IndusInd Bank and Kotak Mahindra Bank were among the top gainers on the Nifty. Losers included Adani Ports, Bajaj Finance, SBI Life Insurance, Asian Paints and HUL.

Going forward, markets are likely to remain range bound along with increase in volatility. Resurgence of the second COVID wave has dented sentiments and weakened FY22E earnings visibility. While the market is currently looking beyond the short-term impact, if the pandemic doesn’t subside soon, it opens up downside risks. 4QFY21 earning season is progressing well so far, but earnings downgrades are now rising, given the widespread restrictions in various states, which is hurting mobility and economic recovery. Thus the interplay of resurgence in COVID-19 cases and the pace of vaccination would decide the trajectory of economic recovery going forward.