Stocks are likely to remain on the front foot as the second-quarter numbers show the rebound in earnings has been swift and sharp. With encouraging covid-19 vaccine efficacy data, global equities got a boost with rising risk appetite. Stocks are likely to remain on the front foot as the second-quarter numbers show the rebound in earnings has been swift and sharp.
Besides, efficacy data of the covid-19 vaccine has indeed come at a good time. The efficacy data shows that it is 90% effective against the virus. This is far higher than some of the optimistic assumptions that were earlier going around.
While the vaccine could take a while to launch, emergency authorization from the US FDA is expected in 2020, which should pave the way for more business to come back to normal. But it is likely to bolster global risk appetite.
This also drove up sectors that could benefit from the vaccine in the coming months. Stocks of hotels, airlines, multiplexes, travel and tourism got a booster shot last week. A rotation is also likely from sectors that were considered defensives against the virus to ‘leave home’ sectors in the coming quarters, point out analysts.
In fact, airline stocks rebounded. Besides, Inter Globe Aviation is the top aviation stock globally as vaccine hopes add to valuations.
Some companies have also posted better-than-expected results. Apollo Hospitals Enterprise Ltd saw operating profit gains in Q2. Hindalco Ltd’s Q2 numbers also surprised the Street. Tata Consumer Ltd’s Q2 results were also good. A good rural economy has also driven up tractor sales benefiting companies like Mahindra and Mahindra.
Besides, interest rates are likely to remain benign with the US Fed keeping the guidance on rates and asset purchases unchanged at its policy meeting in November. US Fed also indicated that it is ready to increase asset purchases if needed. But the increase in inflation could play spoilsport. India’s October retail inflation print has come in higher than the RBI’s target inflation rate. That poses a risk to the RBI’s rate cuts.
However, the India markets would still get the requisite boost from global fund flows. Foreign investors have poured in over $10 billion into Indian equities this financial year. Besides, Indian stocks could get a further boost with the recent rejig of MSCI’s global indices. India’s weightings in the emerging markets basket have increased further. This will increase inflows by into Indian stocks as new changes will come into effect near end-November.
Domestic mutual funds saw net redemptions of ₹4,000 crore in October, and remains a worry. Equity assets under management have shrunk in October. Domestic investors seem to be cashing out from the equity markets at this point.
But one good thing is that analysts are likely to upgrade earnings for FY21 on the back of improved banking sector earnings. Banks are also likely to see earnings growth continue in the FY22 as well as demand for auto and home loans bounce back. This has driven the Nifty Bank index up about 20% in the past month. However, the Bank Nifty still trails the frontline index in 2020 after covid-19 disrupted banks’ operations amid worries of rising non-performing assets.
