Domestic markets are likely to enjoy the bull party on Wednesday amid mixed global cues. As economic activity picks up, analysts believe the elevated valuation of Indian markets will be justified soon. GDP and fiscal deficit numbers present somewhat a rosy picture, analysts said.

According to them, large-cap stocks are still favourites while small- & mid-caps will remain in cautious zone.

The Indian economy registered its highest-ever growth rate in Q1 FY22 since the inception of the quarterly series data (starting in 1996) on the back of a highly favorable statistical base. Real Gross Domestic Product (GDP) growth came in at 20.1 per cent y-o-y when compared with the sharp 24.4 per cent contraction in the same period last year. Sequentially, real GDP noted a 16.9 per cent q-o-q contraction which was much lesser than -29.7 per cent q-o-q during Q1 FY21.

According to Naveen Kulkarni, Chief Investment Officer, Axis Securities, “GDP growth recorded at 20.1 per cent for Q1FY22, was largely in-line with expectations of 18-22 per cent. However, the double-digit growth is slightly deceptive given the low base effect when the economy had contracted by 24.4 per cent in the corresponding quarter last year”.

Visibility of revival in consumer demand increases with household consumption up by 19 per cent, compared to contraction in FY21. Pick-up in construction by 68 per cent also shows signs of green shoots, he added. Though the general traction is still below pre-Covid levels, the severity of lockdowns is clearly lower this year compared to last year.

The central government's finances performed better during the first four months (April-July) of the current fiscal compared with the year-ago period. Robust revenue mobilisation on the back of buoyant tax and non-tax collections coupled with re-prioritisation of revenue expenditure has kept fiscal deficit in check at 21.3 per cent of the full-year target.

“The better fiscal numbers in FY22 compared with FY21 are on the expected lines due to the less stringent lockdown and better preparedness this year in terms of pandemic-response,” said CARE Ratings in a note.

SGX Nifty futures currently hovering around 17,138 (at 8 am), as against Nifty futures Tuesday’s close of 17,122.25 points and the Nifty spot close of 17,132.20. Asian markets are mixed with Japan’s Nikkei jumping over 1 per cent. However, equities across Korea, Australia, China and Taiwan are trading lower in early morning deal. The US stocks overnight cooled a bit after hitting another record highs on Tuesday.

Stock markets set new record highs on Tuesday as investors ended August in a buoyant mood, confident of an ongoing economic recovery and that the Federal Reserve's eventual paring back of its stimulus would not knock asset prices anytime soon, said Deepak Jasani, Head of Retail Research, HDFC Securities.

Nifty sliced through 17000 without much effort. A flat advance decline ratio on such a day denotes traders flocking to large-caps and taking profits out of mid- and small-caps, he added.

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