Learn Phonics with Free Lessons & Tips

So I would say the letters.

The letter names are a convenient way to reference a particular spelling, but the sounds they represent are essential to learn, so concentrate on sounds (phonics) first, moving quickly to the sounds of the many digraphs common in English spelling, like "sh," "ch," "ow," "ck," "oa," etc.

Grammar is the structure of the language - the framework, how it all fits together.

Phonics (actually a method of teaching reading and writing) relates to the sounds of the language and how those sounds make up words. 

Phonics deals with sounds but grammar deals with rule for the language

Phonics or Phonic activities is a significant building block in building child's ability to learn literacy. It lays a foundation to pronounce words well and with the help of the sounds,children do try to initiate pronouncing the new word given to them. This is reflected especially when a child starts reading story books on their own.