Valuations at these levels are certainly high

Binod Modi, Head Strategy at Reliance Securities
Domestic equities witnessed strong rebound mainly led by positive commentary from the RBI. RBI’s commentary remained dovish and maintained status quo on policy rates with accommodative stance.

This led sharp recovery in financials stocks. Additionally, guidance of positive GDP in 3QFY21 bolstered confidence among investors. All sectoral indices ended in green with sharp recovery in BFSIs. ICICI, UltraTech and Hindalco were among top gainers.
Given revised upwardly guidance of CPI inflation and dovish commentary by the RBI, we believe negative real interest rate scenario will continue to prevail that bodes well for equities. However, valuations at these levels are certainly high and required earnings growth to support these valuations is considerably high. Any kind of setback for sharp earnings recovery may lead to sharp reversal. Hence, investors must focus on quality names. (Share Manthan, December 05, 2020)