#39;Opportunities seen in stocks that are benefitting from unlocking of economy#39;

Market Outlook

The sentiment in domestic market was upbeat throughout the week as domestic economic data releases were in favour of bulls

Vinod Nair

September 04, 2021 / 12:35 PM IST

Indian market was consolidating during the month of August due to rising global volatility which was pondering on high valuations, inflation, and delta to have an influence on the future market return and rate of economy recovery. However, the most important factor for the market correction was in anticipation of a fall in financial liquidity, the key reason for the start of rally from April 2020-low. The US Fed chair was to comment, at the end of the month, at Jackson Hole, which was believed to set a precedence on the future measure of tapering.

The market knows that quantitative easing (QE) is going to normalization but wants to know when and how much. If the rate of rewinding is fast, the effect on equity market will be high and vice versa.

This uncertainty was impacting the domestic market, especially correction in mid & smallcaps. A very dovish commentary of US Fed chair Jerome Powell has completely changed the hesitating scenario. Now, the market understands that FED stands for a tapering and will happen very soon but importantly it will be very steadily. The rate of reduction will be in the context of the upcoming economy data & delta variant. This may have preponed the time of tapering but extended the period of quantitative support. This is unlikely to impact the momentum of the market which is also supplemented by rise in economic growth.

A sudden change in sentiment has brought a buying opportunity for global investors. This positive opinion is expected to continue in the short-term while future trend will be based on the economy data, which FED will eagerly watch-on. The market will get volatile during the announcement of such economic & variant data as we near the next policy date of September, November & December. However, we can presume that the extent of volatility will be low as it is clearer that the amount of tapering will be small.

The sentiment in domestic market was upbeat throughout the week as domestic economic data releases were in favour of bulls. Along with retail investors the key factor is the buying spear of FIIs and improvement in global trend after the dovish view. The other think is the recent positive domestic economy data like GDP, GST & PMIs suggesting that many part of business activities have reverted to pre-Covid levels and unlocking of the economy is going to further boost the market in the coming quarters.

In India, the broader market is doing better because of the comeback of Mid & Small caps which can be expected to continue well, in the short to medium-term. The immediate best bounce opportunities are on stocks & sector which are to benefit the most from the unlocking of economy like Capital Goods, Industrials, Metals and Infra. Some of such beneficiaries like Auto & Banking can be expected to join later in the coming months as current fundamental data is weak due to second wave. New generation companies, global contract manufacturers and sectors like Chemicals, IT and Pharma look good with high growth & new business model as per the domestic & global demand. Value buying will also be a key factor in this premium market, for sectors like FMCG, durable & non-durable Consumption ideas and Banking sector, with accumulation as a good strategy on a long-term basis.

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Vinod Nair is the Head of Research at Geojit Financial Services.