Indian markets witnessed a spectacular run recently, with markets surpassing pre-Covid peaks primarily tracking near normal economic activity domestically, robust FII flows (~US$4 billion in MTD November 2020), incrementally positive news flow on Covid vaccine development. Part of market optimism was also fuelled by a better-than-expected Q2FY21 wherein maximum companies benefitted from low raw material cost and realised operating leverage benefits with management commentary positive on demand prospects and retaining some part of operating leverage gains in the post Covid world. On the macroeconomic front, GST collection for October 2020 was in excess of | 1 lakh core (up ~10% MoM) while present E-way bill generation, fuel consumption and power demand surpassed pre-Covid levels. Given the sharp up move in the present month (up ~10% MTD), we expect broader market participation to follow. Stock specific action is expected to continue wherein we continue to like IT, pharma, private banks and rural economy linked business models.
Going forward, post blip over FY19-21E, earnings recovery in FY20-23E period will be led by automobile sector, oil & gas space and index heavy BFSI space (~38% weight) that now also includes the insurance sector.
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