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

The markets continue to trade firm on the back of improving data on economy and Covid infection, positive commentary by corporates and an accommodative monetary policy. There was strong performance by the corporate India in quarter ended Sep20 with Nifty 50 companies showing profit growth of 16% on the back of better than expected sales growth and tight cost management. There are expectation of earnings growth of around 10%  in FY21 and more than 25% in FY22. RBI in its monetary policy highlighted that the growth recovery was uneven and that there was a need to support growth on durable basis, and hence retained the accommodative stance as long as necessary – at least during the current financial year and into the next financial year.

CPI inflation remains higher than the mandate given to MPC and remains a key risk to easy monetary policy.   In CY20, India has seen FII inflow of US$ 17 bn, which has greatly supported the market. As the US dollar is expected to remain weak, flows into emerging markets and India is expected to continue, which should be positive for the equity markets.  Nifty P/B has moved to 3.7, which is close to pre Covid levels in January 20. It implies that equity returns from here onwards will come from earnings delivery rather than valuation rerating.