market outlook: Record highs beckon as D-Street looks to leave Covid in rear-view mirror

MUMBAI: After a solid week of returns for the domestic stock market, investors are excited about the prospects that benchmark equity indices may soon climb towards their record highs more than three months after setting them in mid-February.

“Since the Nifty50 has decisively broken the 15,000-mark on both daily and weekly closing, it can potentially inch up to 15,500 quite fast. The falling Covid cases and good earnings season could be the main reason for further up move,” said Shrikant Chouhan, executive vice president of technical research at Kotak Securities.

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This week, benchmark indices rose over 3 per cent led by a resurgence of interest in bank stocks as well as fading concerns among investors over corporate earnings growth, which were triggered by the onset of the second Covid-19 wave.

The banking pack represented by the Nifty Bank index surged nearly 8 per cent during the week helped by an aggressive bout of short covering by traders and some resurfacing of buying interest. Shares of State Bank of India, ICICI Bank, Axis Bank,

, HDFC Bank and Bandhan Bank led the gains as they rose 4-11 per cent in the week.

The resurgence of interest in financial services companies has been driven by emerging confidence among investors that the sector’s health will not bear the effects of the ongoing restrictions across the country.

“If the pace of vaccination picks up by Q3, as we expect, then the economy should benefit from the dual tailwinds of renewed normalization, coupled with the release of some pent-up demand from the current phase of lockdowns,” said brokerage firm Nomura Financial Advisory and Securities India in a recent note.

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Banks were not the only lot that benefited from the fading concerns around Covid-19. Sectors such as hotels, multiplexes and even automobiles rose during the week, suggesting that investors are counting on restrictions to ease soon.

Analysts believe sectors that will benefit from the easing of lockdowns across major cities will be favoured by investors in the coming week.

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Daily new cases India have seen a steady fall over the past week after hitting record highs of over 400,000 earlier this month. Further, the positivity rate and the rate of reproduction of the virus have seen gradual decline this week in further signs that lockdowns have helped slow the spread of the virus.

That said, investor focus will remain on the vaccination pace in the country, which has been stalled due to supply shortages. Earlier this week, Dr Reddy’s started the distribution of Sputnik V vaccine in the country and with existing production of Covishield and Covaxin expected to increase in June, investors are expecting a steep acceleration in rollout of vaccine from July, said analysts.

“Faster vaccinations after June, strong global growth and easy financial conditions are likely tailwinds to the ongoing business cycle recovery,” Nomura said.

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