Last Updated : Nov 22, 2020 07:47 AM IST | Source: Moneycontrol.com

DAILY VOICE: Eye on vaccine! Build your portfolio on these 5 themes for 2021: Neeraj Chadawar

Our picks for SAMVAT 2077 are ICICI Bank, Canfin Homes, SBI, Bharti Airtel, Tech Mahindra, SIS, Eicher Motors, Dalmia Bharat, Varun Beverages, Dhanuka Agritech, and Aarti Industries


There are ten good COVID vaccine candidates in phase 3 trials and vaccination can be expected by early 2021, if not earlier. So, Samvat 2077 will also see the vaccination theme playing out across the sectors, Neeraj Chadawar, Head - Quantitative Equity Research, Axis Securities said in an interview with Moneycontrol’s Kshitij Anand.

Q) Markets touched fresh record highs. What does it mean for investors?

A) Currently, multiple events are simultaneously playing out well for the equities market ranging from a sign of relief from uncertainty over the US election, consistent FII flows, a weaker dollar, all favouring equities.

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Overall investors’ sentiments have improved in the last few days. Now the investors are betting higher on riskier assets like equity, these improved sentiments further fuelled by optimism on the vaccine development after the upbeat results shown by US drug manufacturer Pfizer and BioNTech.

COVID-19 Vaccine

Frequently Asked Questions

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How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

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Markets hit an all-time high after a positive development on the vaccine front, which has boosted the optimism over the economic recovery.

Currently, there are ten good COVID vaccine candidates in the phase 3 trials and vaccination can be expected by early 2021.

Samvat 2077 will also see the vaccination theme playing out across the sectors. Successful vaccination drive will mean a complete opening up of the economy and the most affected sectors like travel and tourism will get a boost.

More offices, malls, and recreation centers will open up and stocks associated with these themes will pick up steam.

Q) What should investors’ expect from SAMVAT 2077? After the super rally we have seen, we are just 400 points shy on Nifty to hit fresh record highs. Amy target that you have in mind for the next 12 months?

A) Successful vaccination drive will mean a complete opening up of the economy and the most affected sectors like travel and tourism will also get a boost.

We recommend building a portfolio on the following themes to generate outperformance in SAMVAT 2077:

A)   The small and midcaps are picking up steam and they should deliver solid returns in 2021 as economic uncertainties will reduce and volatility will decline. We believe volatility will decline significantly in 2021 which will lead to a small and mid cap rally.

B)   Housing and banking will be major themes to watch out for in 2021 because of correction in real estate prices and lower interest rate regime.

C)   Digital and telecommunications will continue to remain major long-term structural themes.

D)   Vaccination drive and complete opening up of the economy will be key factors for growth.

E)   Growth is now a more certain theme, but growth at a reasonable price will be an even bigger theme to invest which will deliver solid returns over the next one year.

Based on these themes, our Diwali picks are: ICICI Bank, Canfin Homes, SBI, Bharti Airtel, Tech Mahindra, SIS, Eicher Motors, Dalmia Bharat, Varun Beverages, Dhanuka Agritech, and Aarti Industries

Q) What is your call on US elections? How will it impact Indian markets?

A) Currently, markets across the world are witnessing a big post-election rally, a sign of relief after a long week of uncertainty over the outcome of the US election.

Finally, Democrat candidate Joe Biden has been confirmed as the 46th president of the United States. The recent rally across the countries had been built on the assumption of Democrats controlling the House while Republicans most likely to retain the control of the Senate.

This divided outcome will reduce the chances of big fiscal stimulus vs the earlier expectation under the clean sweep of Democrats.

A Biden’s presidency and Republicans Senate are unlikely to see domestic changes in tax, healthcare and other policies which were earlier projected to be the biggest fear from the investor community under the clean sweep of Democrats.

The dollar may lose some strength on account of lower interest rates which are likely to continue for a longer period of time. 2021 is likely to be a good year for the emerging markets as inflows are likely on account of weaker or stable dollars.

Q) Most investors would want to write off 2020 from their portfolio. Even after rallying more than 50% from March lows, most portfolios are negative or at best single-digit returns. What are you advising your clients?

A) We believe 2021 will be the year of mid and small caps and even the BFSI sector is likely to perform well.

We continue to believe in our themes of Digital, Pharmaceuticals, private banks, Telecom, staples, personal transportation, and rural but also believe that housing could be a good theme in 2021.

We recommend clients to make a long term portfolio on the above themes to generate outperformance in 2021.

Q) Green shoots are clearly visible be it in auto numbers, GST numbers, stable earnings, and the macro data. Do you feel that much of it is already priced in which would cap the upside?

A) Lead high-frequency indicators are suggesting a pick-up in economic growth. Indicators like Manufacturing PMI, GST collection, Auto sales number, E- way bill, electricity consumption all are trending higher, showing a strong recovery in economic activities.

The Indian banking system has coped well with the pandemic challenges and it is now flushed with liquidity. Interest rates are low and lending is much likely to pick up strongly in the forthcoming quarters.

New home registrations are seeing a solid pick up across the metros and housing loans are surging across the banking system. Even looking at the building materials companies' results, the demand scenario looks quite encouraging.

October was expected to be volatile which resulted in the underperformance of small and mid-caps but over the medium term the small and midcaps are more likely to outperform the broader market and the current volatility provides a good entry point for accumulating small and midcaps stocks which are likely to outperform in 2021.

Q) What is your call on September quarter earnings? Some brokerages have already upgraded their EPS estimates for Nifty. What is your view – do you think numbers warrant an earnings upgrade and why?

A) Earnings scenario has improved with the Q2FY21 quarterly results with the majority of earnings beating expectations, 25/39 Nifty companies have beaten the street estimates at EPS level.

Management commentaries highlight confidence on demand revival, 1) IT sector continues to beat the expectations, better than expected guidance has changed the outlook for the sector resulting earnings upgrade and sector re-rating. 2) Better realization in the cement sector has impressed the street on PAT & EBITDA expectations, 3) Discretionary spending gradually returning after muted numbers in the last quarter. 4) Staples posted good numbers. 5) Banking stocks have been the major laggards because of the NPA issues.

However, Q2FY21 results demonstrated that the banking majors like HDFC, ICICI, Kotak and Axis have handled the crisis very well and the NPA challenges may not be as significant as were expected at the beginning of the lockdown crisis.  6) Oil & gas beat the estimates on account of inventory gain and lower expenditure.

Key Risk: If demand falls short of expectation around the festive season and inventories remain high in the system, then it could hamper production growth in the coming months

Q) As we approach the festive season – what would be your message to investors on Diwali 2020?

A) Samvat 2077 now looks much brighter and this Diwali has brought festive cheers to many, but still, there is a long way to go. It seems more likely that growth is likely to come back strongly looking at the high-frequency indicators.

The Indian banking system has coped well with the pandemic challenges and it is now flushed with liquidity. Interest rates are low and lending is much likely to pick up strongly in the forthcoming quarters.

New home registrations are seeing a solid pick up across the metros and housing loans are surging across the banking system. Housing and banking will be growth themes for Samvat 2077.

Pick up in the real estate sector will bode well for the economy as a whole as capacity utilization across the system will improve significantly. We would recommend a portfolio-based approach in SAMVAT 2077 to generate outperformance in the market.

Q) What are your views on small & midcaps for the next 12 months? Do you think the outperformance will continue?

A) From a valuation perspective, the mid-caps look attractive vs. large caps. The recent spate of IPOs and their success clearly indicates that the appetite for mid and small-cap stocks.

Our case for two-year rolling returns indicates that the market has turned in favour of small and mid-cap stocks which are more reasonably valued and offer greater upside potential.

Further, mid and small caps have outperformed the large caps for a longer time frame of 3 months to one year.

October was expected to be volatile which resulted in the underperformance of small and mid-caps but over the medium term the small and midcaps are more likely to outperform the broader market and the current volatility provides a good entry point for accumulating small and midcaps stocks which are likely to outperform in 2021.

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.
First Published on Nov 22, 2020 07:47 am
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