Weekly market review by Hemant Kanawala, Head - Equity, Kotak Mahindra Life Insurance Co. Ltd.

Strong performance continues

Continuing its strong performance from the previous week, Nifty returned 2.0% over the last week supported by strong flows and a strong start to earnings season. Broader market, however, suffered with Nifty midcap index contracting 1.5%. With the Q2FY21 earnings season upon us, market is starting to take cues from quarterly results and management guidance for the future. To this end, IT continued its strong results and guidance with Infosys declaring consensus beating results. Index heavyweight banks and financials too saw strong participation, propelling the market forward. Foreign flows came into India strongly over the last week with ~ USD 632 mn deployed by foreign institutions. Domestic investors withdrew ~USD 502 mn during the same time. The recent rally has increased market P/B ratio to 3.4x, closer to its long term average of 3.5x.

On macroeconomic front, RBI’s in its latest monetary policy announcement unveiled significant set of measure to keep financial conditions orderly, boost credit growth and circumvent the inability to cut rates due to high inflation. Among key measures, announced, RBI decided to conduct on tap TLTRO with tenors of up to three years for a total amount of up to INR 1 tn to be deployed into in corporate bonds, commercial papers, and non- convertible debentures in specific sectors. This should help to boost access to funds and guide credit to needy sectors. For the first time ever and as an exception, RBI has decided to conduct OMOs in State Development Securities. This should help to drive down SDL spreads and ensure smooth execution of borrowing of state governments. Note, stress relating to additional borrowing by states especially amid concerns on transfers from compensation fund were an overhang on SDL yields. To ensure smooth borrowing program and appetite for government securities remains intact, RBI decided to continue with HTM limit at 22% through 31st March 2022.

IT, banks and financials outperform; media, auto and telecom bring up the rear

IT (5.6%) continued its outperformance with strong business narrative and numbers flowing in. Following TCS last week, Infosys too delivered a strong result and outlook to cheer the markets. Media (-5.1%) had the strongest under performance last week, largely due to negative news flow relating to Zee Entertainment’s corporate guarantee to Siti Networks. Auto (-1.7%), having had strong performance recently, took a breather with a mixed bag of performances among constituents ahead of festive season. Telecom (-1.4%) continue to be roiled by the persisting competitive intensity acting as a drag.

Exhibit 2:  IT, banks and financials outperform; while media, auto and telecom drag

Exhibit 3: Market rally is pulling Nifty P/B close to its long term average

http://insurancealerts.in/MasterPage/MediaView/3083

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