ICICI Direct: Market Undergoing V-Shaped Recovery, Be Stock Specific 

ICICI Direct Report

Indian markets have been buoyant tracking healthy foreign institutional investors (FII) inflows in August 2020 (approximately 3.5 billion U.S. dollar month to date), pace of economic recovery post the pandemic, progress made by the medical fraternity on development of Covid-19 vaccine.

The present market has almost charted a V-shaped recovery since March lows with its move in last two months surprising us positively given our neutral stance on market in the last report.

Key economic indicators depict encouraging pace of economic recovery viz. domestic power demand (nearly flat YoY), e-way bill generation (approximately 90% of pre-Covid level), FASTag toll collections at key national highways (approximately 80% of pre-Covid level).

However, we are still some distance away from near economic normalcy with auto retail down approximately 30-35% YoY and decline in diesel consumption by approximately 20% (year on year and month on month basis) for first fortnight of August 2020.

Currently, we believe the index captures a large part of economic recovery optimism and would recommend being more stock specific, which illustrates quality of earnings, sustainability of growth prospects and possesses fundamental moat.

We remain positive on rural economy and resilient sectors like IT, pharma and private banks.

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