Binod Modi, Head Strategy, Reliance Securities.
Domestic equities remained buoyant with Nifty and Sensex recording fresh highs today mainly supported by sharp rebound in global markets.
The favourable progress on Covid-19 vaccine approvals and distribution across the globe has overshadowed the concerns over sharp rise in new Covid-19 cases and resultant lockdowns in various countries. Indian equities emerged as a preferred destination for foreign investors given government’s strong commitment to revive economy. Additionally, prospects of corporate earnings recovery have emerged strongly and convincingly, which is much evident from key economic data and commentaries of various industries’ managements.
However, a sharp up-move in a number of stocks which do not have strong earnings visibility and even lag in terms of corporate governance is a kind of worrisome factor. In our view, premium valuations of the market may sustain as long as earnings visibility remains intact and central bankers do not press the button of fiscal policy tightening. However, rich valuations may not result in a broad-based market rally in the medium term and therefore stocks which have strong earnings potential with high margins of safety should be preferred. (Share Manthan, December 09, 2020)
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