Why market is cheering despite Covid 3 overhang

Top line growth has been more than expected in terms of corporate performance, microeconomic numbers also. That is contributing to the positivity along with domestic liquidity. A surprising thing to note is that in July, we had a net negative FII flow, says Kunj Bansal, CIO, Karvy Capital What a great day after many days of consolidation and being stuck in the 15,700-15,900 range, finally the market has taken that leap to 16,000!Yes it has taken almost one-and-a-half months. We had touched 15,900 on June 15 and from there, it continued to move in a very small range but not breaking on either side -- down or up. Today it finally touched 16,000. We are happy because most of the participants in the Indian market have bullish mindsets. But there are bears also. There are shorters also. It may not be such a good day for them. The noticeable change in today’s market is that finally at least for today, small and midcaps are underperforming. Whether that sustains or not, we have to see. How do you think the FMCG segment has delivered? We have to keep in mind that although consensus expectations were building in the lower base of last year, the way the companies have operated in the June quarter of this year despite lockdowns, going by the experience of last year June quarter, through digital modes they were able to handle the supply chain, logistics and distribution very efficiently and managed to capture the demand in the market. Last year, the lockdown had come out of the blue and the companies were not used to dealing through digital modes. That experience helped them this year and in my view that seems to have contributed to the better show. Of course, the low base effect helped as did their experience in dealing with such situations digitally. In terms of stock participation because of the consolidation in the market over the last one-and-a-half months, we have seen underperformance by the FMCG sector. Now, we are suddenly seeing an outperformance or a demand coming for these stocks as well. Why is the market so optimistic because states like Kerala and Maharashtra are again seeing a spike in Covid cases. We are still very much in the midst of earnings season, the credit policy is lined up later this week, apart from 4 IPO listings. With Rs 27,000 crore getting raised from the IPOs for the current year, liquidity will probably get sucked out. That is one way of looking at it. The other way of looking at it is that it shows the kind of interest that is there in the equities currently and the kind of money inflow that is there. Of course, the four IPOs of this week are not going to be any significant money raisers compared to the IPOs that were there earlier. So I do not think that is a negative. What is leading to the current positivity despite some of the negative factors which you rightly mentioned are a few things. a)The GST number for July is coming in at Rs 1 lakh crore plus falling to Rs 92000 crore in June. That shows the recovery in the industrial activity. b)Over the last two, three days, macroeconomic data like PMI, core industries growth figures have come in and are showing reasonably good growth again. c)Auto sales figures are out. They have been mixed but net-net, an interest is visible. These are the reasons the market is cheering. Last week, the US Fed meeting as expected, continued to maintain zero interest rates and most likely RBI will maintain quid pro quo for its credit policy also. So I do not think there is a worry that interest rates are going to be raised anytime in the near future. Also, the slightly more than expected positive growth in the economy, good growth in companies’ top line numbers have also helped. The pressure on the gross margin because of the increased commodity prices was expected. But the top line growth has been more than expected in terms of corporate performance, microeconomic numbers also. That is contributing to the positivity along with domestic liquidity too. A surprising thing to note is that in July, we had a net negative FII flow. So, if at all, the flow from global funds was not applicable. But despite that, the market continued to consolidate thanks to domestic inflows.

from Economic Times https://ift.tt/2WX63g9