Market rally depends on fresh information on Delta infections, success of vaccination drive
Throughout the month, the coveted 16,000 mark remained elusive on Nifty50 despite making several attempts.
The Nifty returned 0.2 per cent for July 2021 and made an all-time high of 15,962 around the middle of the month, however, could not get past the 16,000 mark despite making several attempts. Somehow, close to 15,900, markets faced some of the other negative news throughout the month, while near 15,500, some positive news flow kicked in to provide support. Consequently, in the entire month, headline indices hovered in a narrow range of 15,500-15,900.
Going forward, we expect markets to be driven by several factors.
- Incremental Covid cases from across the world especially for the Delta variant.
- Pace of vaccination drive by the government.
- Impact of Covid-related restrictions on mobility and re-opening of cities.
For helping people invest their hard-earned money, we made a thorough list of sectors and stocks that we will prefer in the coming time.
Metals (Steel, Aluminium, Zinc, Copper)
- Very strong pricing environment on the back of high demand (likely to be created by aggressive infra spending by various governments).
- Despite the likelihood of reducing steel prices in July, we expect the impact on companies’ profitability to be limited. This decline in prices will be temporary and the landed cost of imported steel is still higher than the domestic price.
- De-leveraging of balance sheets to continue in the first quarter of 2021-22 also on the back of expected solid numbers.
- No major impact on commodity prices was witnessed despite China trying to manage prices through inventory offloading.
- Iron ore, graphite, calcined coke, and various alloys are allied sectors to steel, aluminium etc.
- Demand for these products is directly proportional to demand metal. Hence, these companies are also witnessing high demand coupled with strong pricing power.
Stocks we like
Tata Steel | JSW Steel | SAIL | JSPL | Hindalco | NMDC | Godawari Power | Graphite Inds | HEG | Rain Inds
IT (Large-cap and Mid-cap)
- The sector is likely to deliver strong earnings growth in the first quarter of 2021-22.
- Visibility of high earnings in the next couple of years through all-time-high deal wins.
- Many new areas of action opening up, which will be a revenue driver for companies.
- High margins were maintained despite wage hikes due to savings on SGA and travel costs.
- User base expanding as everyone realise the need for IT for Work from Home.
Stocks we like
Intellect Design | KPIT | HCL Tech | Wipro | Mastek | Route Mobile
Financials (Banks, NBFCs, Intermediaries)
- The sector has been an underperformer for the last several months due to apprehension on asset quality.
- Large borrowers are repaying in time due to better pricing in an environment, especially in commodities, resources and power.
- Stress is visible in retail, SME and MSME, but the government is helping through credit guarantees.
- Resolution of many past insolvency cases will result in write-back of provisions.
- Most banks are well equipped to handle asset quality stress through the adequate buffer in provisions.
Stocks we like
HDFC Bank | ICICI bank | Axis bank | Kotak Bank | Baja Finance | SBI
Disclaimer: Stocks mentioned anywhere in this report are for illustration purposes only. These are not a recommendation to buy. Any call to buy is given separately through regular means of communication.
The author is CEO and Founder, Finway FSC
DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.