Prasanna Pathak who has about 2 decades of experience in the capital market is of the view that with ample liquidity globally, value stocks should make a come-back in FY21.
Pathak who is Head of Equity & Fund Manager at Taurus Mutual Fund says that looking at 2021 and beyond, we tend to be optimistic given the return to normalcy on the hope of effective vaccination, pick up in earnings momentum, and sustenance of global liquidity, he said in an interview with Moneycontrol’s Kshitij Anand.
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 views for 2021?
A) The sharp fall of the markets took benchmark indices to a multi-year low in a matter of few weeks and an equally dramatic V-shaped recovery was seen to surpass all-time highs in the same year has been truly remarkable.
Thanks to the unprecedented monetary and fiscal stimulus, negative interest rates, global liquidity, news on vaccines, and better than expected recovery in corporate earnings.
Looking at 2021 and beyond, we tend to be optimistic given the return to normalcy on the hope of effective vaccination, pick up in earnings momentum, and sustenance of global liquidity.
However, we expect the markets to consolidate in the short term given the sharp rise in stock prices and valuations.
Q) In one word if you have to define the year 2020 what would that be and why?
A) Extraordinary! The year 2020 has been truly unprecedented in the way it has affected the human race. On one hand, nature was at its worst with a widespread pandemic, wild fires, earthquakes, storms, and tsunamis.
On the other hand, we had forced lockdowns, trade wars, geopolitical tensions, widespread protests/agitations on various issues, and a dramatic US election.
There has been an acceptance of work-from-home, sharpest growth for the digital economy and online markets.
On the financial side, we saw the sharpest falls and v-shaped recovery in equity markets, sub-zero crude oil prices, unprecedented monetary and fiscal stimulus, negative interest rates, sharp rise & fall in the dollar index, the rise of commodities and various other asset classes amidst abundant global liquidity.
There was no dearth of action in 2020. With the recent news on the new strain of corona-virus, looks like, it’s not done yet.
Q) What is your outlook on earnings for the year 2021?
A) We expect the revenue growth to pick-up as things normalize as mentioned above. Also, most of the companies have rationalized costs and have become leaner.
So there will be operating leverage at play if revenue growth picks up. Also, the leveraged ones will benefit from lower interest rates. Hence, we expect an over-all pick-up in earnings for FY21 and FY22.
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) I think, apart from the usual stuff, policies that will directly stimulate demand in a big way like income-tax cuts would cheer the markets.
Q) What is the feedback that you are getting from FIIs/HNIs for India?
A) Most of the FIIs/ HNIs that we interact with are bullish on the prospects of emerging markets, especially India from a 2-3 year perspective.
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) Diversification across asset-classes is important as they tend to have different cycles. However, one must be aware of which cycle a particular asset class is into.
Considering the sharp outperformance and historical volatility of Bitcoins, only sophisticated investors should look into it. Gold could be a better alternative of diversification for the regular retail investors.
Q) Any new trends in terms of sectors which you are seeing that could last for the next couple of years?
A) In our opinion, IT and Pharma should continue to show good earnings traction for the next couple of quarters’ at least.
Banks/NBFC’s should outperform as the economy revives. Other sectors that look interesting are Infrastructure, Real-estate, Auto, and Commodities.
Q) Your key learnings from the year 2020? And what would you advise investors to follow in the coming year?
A) My key learnings: 1) Markets are unpredictable and no one knows about the future. I repeat -No one!, 2) Liquidity is King! Follow the liquidity. That way one has a better chance of being on the right side.
Advice for investors:
It is difficult to find the top or bottom. So, invest regularly. Diversify adequately within equities and across asset classes. Different asset classes have different cycles. Try to understand the cycles. Discipline and asset allocation is the key to wealth creation.
Q) Value or growth – what would be more popular in 2021 and why?
A) Different people have different definitions/ interpretations of value and growth. For example, a good growth company with a good management in a sector with huge future potential can be a value stock for someone with a long-term horizon even if it appearing expensive on valuations today.
But, generally speaking, growth stocks have done well for a long-time now and most of the growth stocks are well-discovered and expensive. I think, with ample liquidity globally, value stocks should make a come-back in FY21.
Q) What would you prefer large-caps or mid, and smallcaps in the year 2021?
A) Midcaps and small-caps have underperformed large-cap space for a long time now-since Jan 2018. Many of them have resorted to cost-cutting, become leaner, and have got rid of excess leverage during the time period. Also, a broad-based pick-up in the economy should benefit them more.
As discussed above, in a scenario of ample global liquidity, money has already started flowing to these companies. I think mid-cap and small-caps should do well for the next 2-3 years.
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.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
