Sorbh Gupta, a fund manager - equity at Quantum AMC, said over the years, Budget days have become less important as most policy and reform decisions are taken outside the purview of the Budget. However, the government can use this year’s Budget to announce measures to stimulate the demand side of the economy and bring back livelihoods lost during the pandemic.
Here's an edited excerpt of his interview with Moneycontrol’s Kshitij Anand.
Q) Calendar year 2020 was a volatile, unpredictable, and a period which changed how most of us live, socialise, and not to forget invest. What is your outlook for the year 2021?
A) Year 2020 does qualify for a ‘once in 100 years’ tag by all standards. The pandemic and the related impact has changed our way of life.
The equity market's quick descent into the abyss by March 2020 as the virus spread and a steady improvement from thereon (Nifty lost 35% by mid-March only to rally by 90% from March lows till the year-end) has been equally stunning.
2021 has started on a positive note with the rollout of vaccine news. With vaccines now made available, the pandemic should be contained. Despite the sharp run-up, we are constructive on Indian equities driven by the following factors
1) Multi-year low mortgage rates are acting as a catalyst for revival in demand in real estate. Increased real estate transactions could drive consumer demand as buyers look to fill-up newly purchased homes with consumer durables, home furnishings, etc. boosting economic activity.
2) The attractive spread between Indian government bond yields vs. developed markets yields will make Indian fixed income investment attractive to Pensions & Insurance companies. These flows if channeled correctly can keep domestic interest rates low for an extended period and act as an economic multiplier to drive consumption demand as well as Infrastructure creation.
3) Corporate India having experienced an economic slowdown for the last few years has been focused on driving efficiency and controlling costs. Even a small rebound in demand will drive operating leverage, resulting in an increase in profits at a much faster pace than revenues.
4) Strong flows plus an improving earning cycle, will most likely ensure elevated PERs sustain
Q) The next big event which would drive the sentiment is Budget 2021 and FM has already given a teaser that it would be a vibrant one. What are your expectations from the Budget and policy measures that could cheer markets?
A) Over the years, Budget days have become less important as most policy and reform decisions are taken outside the purview of the Budget. However, the government can use this year’s Budget to announce measures to stimulate the demand side of the economy and bring back livelihoods lost during the pandemic.
To put it simply, any Budget announcement which puts more money in the hands of consumers should be cheered.
Q) Which sectors are likely to remain in focus ahead of Budget?
A) We believe cyclical such as Consumer Discretionary & Real estate etc. are already benefitting from lower interest rates. Any further announcements to stimulate consumption demand will help these sectors.
Government has a focus on ‘Make in India’, so any extension of the PLI scheme or any new such scheme will help the domestic manufacturing companies and will get reflected in stock prices too.
Q) The COVID is not over yet but vaccine news is comforting. The uncertainty is likely to linger on in the coming year as well. Which are the big risks for equity markets that investors should keep an eye on?
A) The equity markets are currently choosing to ignore the risks. The second wave of COVID-19 before the vaccine reaches the majority of the population and ensuing lockdown is the single biggest risk on the horizon.
Markets are witnessing strong inflows of foreign capital. Any risk to these flows due to a rise in interest rate expectations (due to inflation) or any other global macro shock is another thing that investors should be watchful about.
Q) FIIs have been generous when it comes to flows in 2020. Will the momentum continue in the coming year as well? Data suggests that FIIs have invested more than US$ 20 bn in Indian equities in CY20 while DIIs have sold more than US$ 3 bn led by redemptions in mutual funds.
A) The economic recovery taking place in India will ensure it regains its status as one of the fastest-growing major economies in the world. With both the growth differential and interest rate differential rate being high, India will be an attractive destination for global investors.
The flows could, however, be lumpy due to global factors. Overall for 2021, it appears that the flows should continue from where it left off in 2020.
Q) Primary markets hogged the limelight in the year 2020 with more than 16-17 mainboard issues collectively raising more than Rs 30,000 crore. What do you foresee for the year 2021, and a big issue to track?
A) Capital raising has been indeed very strong in 2020. Both primary and secondary issuances have seen good demand and supply. Global markets have seen some new age online companies generating a lot of interest and listing at premiums.
There is a good lineup of similar Indian companies, which are turning profitable and planning to get listed in the near future. With a lot of investors waiting to participate in these strong growth businesses, the primary market should be exciting in 2021 too.
The investors, however, need to tread with caution as primary issuances suffer from idiosyncratic risk (the seller knows more than the buyer).
After the initial splash, a lot of the IPOs have given suboptimal returns over the last many years to investors. One should be careful enough before jumping on the bandwagon.
Q) What is your advice for investors for the year 2021? Things to keep in mind while investing/trading especially for first-time investors?
A) Equity Investment should be aligned to investors’ long-term asset allocation plan based on financial goals. Equity works as an asset class only if investments are from a long term perspective.
For 2021, we believe through the benchmark indices look expensive, the broader market still offers pockets of opportunities to invest and generate returns with a long term perspective.
Investors should stagger their equity investments over a period to optimise the opportunities presented by the market.
Q) Which sectors are likely to hog the limelight in the year 2021?
A) Cyclicals like Consumer Discretionary, Metals, Real Estate are expected to do well as economic recovery takes place. Agri and rural economy is another pocket where the macroeconomy has been resilient and companies operating in this sector should see good earning recovery.
IT services companies are benefiting from a strong digitisation and cloud wave and the earnings momentum should continue.
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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