Through high-frequency measures, stocks are on the front foot, backed by a midline to a decent recovery. Even rural demand has been better, in two-wheeler sales as well. In reality, stocks in India, and globally, were rising despite more COVID-19 cases. Given the worst predicted decline in earnings, the June Quarter rally in India was the best in several years. Investor sentiment has strengthened dramatically. The Outcome is that the non-bank and financial stocks are back to pre-COVID levels. The NASDAQ Composite index as well as the benchmark index rose to peaks in China. Some of the hope also arises from the fact that a handful of COVID-19 vaccines already made it to phase III trials globally.
Research Head Rajiv Sharma, SBI Capital Market said that while everyone is looking at a recovery of FY22 earnings, some momentum needs to be given to FY22 by FY21. On that basis, if things don’t fall in position in terms of COVID-19 getting under the track, analysts will start cutting FY22 earnings for both the overall market as well as downwards as well. Nevertheless, a COVID-19 vaccine could alter market dynamics, even if it falls down the line for one year. Nonetheless, some indicators are promising that India’s manufacturing PMI has sprung up very well. The automotive sector, especially two-wheelers, has gone up from lows in April and May.
Investors may want to watch the rebound as sales have been low due to the upgrading and replacement demand from older vehicles. The RBI has declared special support on the financing side for the NBFCs. While that is welcome, it’s not much relief. But the raising of cash to hedge liquidity would create a war chest to fund acquisitions for housing finance major HDFC. Chairman Deepak Parekh has said that inorganic growth could be looked at by the Group subsidiaries. Many industries re-opened businesses with Unlock 2.0. Yet there is also shuttering of multiplexes, and this is reducing returns. But for Vodafone Idea, this is a different picture. The net worth of the company is eroding, despite increases in tariffs.
Meanwhile, an open bid for JB Chemicals and Pharmaceuticals was announced by KKR. (Kohlberg Kravis Roberts & Co.). The premium may be a tad low for a reasonably well-growing business. In addition, this year’s financial markets may have to face a weakening banking sector. The pile of bad loans that bankers have been chipping in the last couple of years will increase further. The banking sector has experienced high-lifting earnings growth in recent years. It might not be the case this year. In addition, the rise in stocks has increased market valuations. Large-caps start looking pricey at the upper end of the valuation band with quite a few trading.
