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DAILY VOICE | Cyclicals & PSUs like SBI, LIC Housing big contra bets for 2021: Gaurav Dua of Sharekhan

The low base of 2020 coupled with a supportive macro environment, both accommodative monetary policy and expansionary fiscal policy, is likely to support strong growth in the economy and earnings.

December 09, 2020 / 07:54 AM IST

We think some of the cyclicals that have underperformed in 2020 could outperform the index in the year 2021, which include oil marketing companies and leading public sector banks & institutions (like SBI, LIC Housing Finance), Gaurav Dua, SVP, Head – Capital Market Strategy & Investments, Sharekhan by BNP Paribas said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpts:

Q) Market seems to be steadily climbing higher. It looks like we could head higher towards 46,000 on the Sensex, and about 14,000 on the Nifty. What is your outlook on the markets for the year 2021? Are we going to see a similar momentum?

A) Year 2021 is likely to be a year of a strong recovery in the economy and corporate earnings. The low base of 2020 coupled with a supportive macro environment, both accommodative monetary policy and expansionary fiscal policy, is likely to support strong growth in the economy and earnings.

It appears to be the beginning of a new business cycle. Consequently, we remain constructive on equity markets.

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Benchmark indices could give 10-12% returns though the opportunity in the broader markets could be much more attractive.

Q) Banks have come under RBI scanner with HDFC Bank, and SBI facing outage. Do you think this issue could snowball into something bigger?

A) Technical glitches leading to inconvenience to customers is quite unfortunate. Most leading banks are expected to take the necessary steps to strengthen their IT & digital infrastructure to avoid such incidents in the future.

We do not expect these incidents to become recurring issues and affect the valuations of banking stocks.

Q) What are your contra bets or themes for the year 2021?

A) We think some of the cyclicals that have underperformed in 2020 could outperform the index in the year 2021.

This includes oil marketing companies and leading public sector banks & institutions (like SBI. LIC Housing Finance) that could turn out to be winners next year.

In fact, it wouldn’t surprising to expect the rise of the entire public sector pack in the year 2021. Apart from this, NBFCs are also set for a good year ahead.

Q) What are your expectations from Budget 2021? This will be an important Budget as the government would try and introduce measures that could help take India out of recession. What are your views?

A) It is too early to take a call on Union Budget 2021-22 at this juncture. Though a lot would depend upon the pace of economic recovery and global cues, the policy framework seems to be focussed on supporting growth in terms of consumer demand as well as investment in infra development.

 Q) Mid- & Small-caps seem to be the talk of the town because broader markets are outperforming in this rally. What is fuelling optimism in the broader market space, and will the momentum continue in 2021?

A) It is not right to paint the entire midcap/smallcap space with the same brush. Though the broader market would continue to offer opportunities but one needs to be careful.

The recent momentum has taken some of the midcap stocks to the irrational level of valuations.

Q) What should be the investment strategy of investors for the year 2021 – how much should one allocate towards large-, mid- & small-caps, Gold, international investing, and fixed income.

A) Asset allocation is a function of individual risk profile, investment horizon and goals. However, as a thumb rule, we would advise 60% in equity with 30-35% in fixed income and the rest in gold.

Q) Vaccine will be a big theme as we enter 2021. Which are the vaccine plays one can look at?

A) Rather than playing vaccine, we would suggest playing economic recovery which is a much broader theme in terms of diversification as well as time horizon.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Kshitij Anand is the Editor Markets at Moneycontrol.

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