Gaurav Dua of Sharekhan by BNP Paribas who has about 20 years of experience in the capital market is of the view that the economic recovery needs to not only sustain but also turn more broad-based and percolate down to the MSME sector.
In an interview with Moneycontrol’s Kshitij Anand, Dua who is SVP – Head Capital Market Strategy & Investments at Sharekhan by BNP Paribas says that in the near-term, hopes are pinned on the rise in government expenditure, improving trend in Q3 earnings, and a growth-oriented Union Budget.
edited excerpts:
Q) The year 2020 which most of us thought could go down as a black year for equity markets has in fact turning out to be a year of new trends, fresh record highs, and a whole new meaning to life. What are your expectations from 2021?
A) Year 2021 is set to begin on a positive note with the equity market soaring to a new high. The market rally is fuelled by a strong economic recovery, supportive monetary policy, and easing of active COVID cases.
More importantly, the easy and ample liquidity globally is finding its way into risky assets including emerging market equities.
But, the Goldilocks scenario is likely to be tested in the year 2021. The economic recovery needs to not only sustain but also turn more broad-based and percolate down to the MSME sector.
The valuations are not cheap anymore. However, the earnings multiple can be high in the early stage of a new cycle and the expected upgrade in consensus earnings estimates for FY22/FY23 would also support the valuation.
In the near term, hopes are pinned on a rise in government expenditure, an improving trend in Q3 earnings, and a growth-oriented Union Budget. The rollout of vaccines and further doses of stimulus in the major economies globally are supportive factors.
What’s more important is that the growth-oriented fiscal policies, like production linked incentives (PLI) for 12-15 sectors, along with accommodative monetary stance could trigger a new business cycle and the initial indication could emerge in the year 2021.
Consequently, we remain constructive on equities as an asset class and look at every dip as an opportunity to buy. We expect double-digit returns in CY2021 through with some hurdles in the journey.
Q) In one word if you have to define the year 2020 what would that be and why?
A) Test
Q) What is your outlook on earnings for the year 2021?
A) Earnings are likely to recover strongly on the back of economic recovery, supportive macros, and low base of the year 2020.
Q) The big event which will be in focus is Budget 2021. What are your expectations from the event? FM promised it to be a vibrant Budget and a lot of policies to support the economy have already been rolled out. So, what could cheer markets?
A) Though many policy announcements are done outside the budget, it is an important event for markets. It would provide insight into the commitment to support growth even at the expense of fiscal prudence.
Q) What is the feedback that you are getting from FIIs/HNIs for India?
A) Cautious optimism describes the mood of domestic investors today. Comparatively, FII seems to be more positive on India.
Q) Bitcon outperformed most of the asset classes. Do you think it is time for investors to take cryptocurrency seriously and add some percentage to their portfolio which could be part of global diversification?
A) Year 2020 has seem institutionalisation of cryptocurrencies. Some long-only funds seem to have taken minor positions in cryptocurrencies along with gold to hedge against volatility and weakness in US Dollar.
However, most cryptocurrencies are very volatile and might not be suitable for direct investments by retail investors.
Q) Any new trends in terms of sectors which you are seeing that could last for the next couple of years?
A) We see scope for re-rating in the NBFC space. Also, some of the late gainers of the economic recovery and easing of active cases offer relatively better valuation comfort and could outperform in the year 2021.
Q) Your key learnings from the year 2020? And what would you advise investors to follow in the coming year?
A) The surprisingly strong rally from March lows has again brought to fore the ills of trying to time the market and benefits to invest in quality companies that outperform in all market conditions.
Q) Value or beta – what would be more popular in 2021 and why?
A) At the current juncture, it would be advisable to partially shift allocation away from high beta stocks to value picks and evergreen stocks.
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.
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