Thread by @SahilKapoor

A thread
India Market Strategy – Be Agile, Be Ready

Quick recovery, tapering - High freq indicators are becoming patchy. Recovering is slow. The initial V shape recovery due to pent up demand is over.

India's quick recovery was shallower than peers and is slowing already.

Faltering Growth, A Test for Policy Support - The nascent reflationary cycle led by supply side bottlenecks and a US Dollar depreciation led resurgence in commodity prices is at crossroads. The longer COVID-19 led disruptions continue the more policy support will be required.

In such a scenario the limits to counter cyclical support will be tested, more so for countries other than the US. The US Dollar remains the funding currency and may regain an upper-hand incase of further delay in vaccine rollouts or mobility restrictions.

Valuations remain the bedrock of looking at evolving macro data and subsequent actions on stocks, bonds and currencies. We recommend to err on the side of optimism when valuations are attractive, and that phase is likely to unfold in the current round of correction.

Be Agile, Be Ready- Indian equity markets have been trading at cyclically expensive valuations reflecting a quick road to normalcy. At recent swing high of 11,800 Nifty traded at a PE of more than 19.2 times of FY22 EPS. That leaves little room for gains

As a barometer of broader markets, we believe Nifty (LTP 11,220) would look attractive once the recent wave of correction takes it closer to its average valuation of 16.5 times of FY22 which would be in the range of 10,000 to 10,300.

Stimulus, Normalcy To Aid SMID - More opportunities are likely to emerge in the small and mid (SMID) cap space which are more attuned to the trends in the broader economy. The recent rally in SMID may see pressure from slowing high frequency data.

A few charts from the report.
Link to the full report - edelweiss.in/research/india…

@ankitapathak_