My reading of market for the year gone by is - nothing stays forever and what really counts is structural pillar of strength rather than transient headwinds, Sanjeev Hota, Head of Research at Sharekhan by BNP Paribas said in an interview to Moneycontrol's Sunil Shankar Matkar.
For 2021, he expects double-digit return in Nifty and more importantly a much broader market participation led by economy and earnings recovery, coupled with continuation of liquidity flows and favourable government policies.
As per the official reported numbers, India has received $43.5 billion FDI during the January-September 2020 period. Hota expects the trend would continue in 2021 as well and feels India may surpass the 2020 numbers led by further relaxation of government norms and opening up of sectors like defence, media and insurance among others.
Edited excerpts:-
Q: What is your overall reading on 2020? Do you expect double-digit returns in 2021 also or should one prepare for selling in market?
The Year 2020 was truly an unusual year for stock markets led by unprecedented COVID-19 crisis, where we have seen excesses on both the sides and a complete equity cycle in a very short span of time. We saw a 30 percent plus drop in Nifty in a single month and then when everything seemed like getting worse, market touched all-time high in a span of nine months. So, my reading of market for the year gone by is nothing stays for ever and what really counts is structural pillar of strength rather than transient headwinds.
For 2021, I expect double digit return in the Nifty and more importantly a much broader market participation led by economy and earnings recovery, coupled with continuation of liquidity flows and favourable government policies.
But there could be intermediate corrections and hurdles in-between, which I believe is healthy for the market. So, overall, I continue to remain constructive on equity as the best asset class for investments in long term.
Q: What is your biggest lesson learnt from 2020 and what do you want to avoid in the coming year? Also what is your advice to investors with respect to 2021?
The biggest lesson that 2020 has taught us again is nothing stays for ever and investors need to ride the market volatility and should focus on the core long term fundamentals pillars rather than worrying about short term challenges.
My advice to investors would be to avoid the recency bias and avoid chasing fragile companies, where fundamentals are questionable. Also, do not pick and invest in any company in a favourable sector just because of relative cheap valuation. Always remember tiger and cat both belong to same family but have totally different characteristics. So always invest in sound companies.
Q: The primary market witnessed around Rs 31,000 crore of IPOs in the year 2020. Do you expect the primary market to remain strong in 2021 too and will the fund raising via IPOs be more in 2021 than 2020? What are those IPOs expected to be launched in 2021?
I believe 2021 will also witness good numbers of IPOs from varied sectors, and liquidity in the markets and recent success of quality IPOs will aid to smooth fund raising in the primary market. Some of the notable names that could see IPOs in 2021 are LIC, Kalyan Jewellers, Grofers, Barbeque Nation, NSE, Railtel, among others.
Q: What are those key sectors one must add and avoid in 2021's portfolio, so that the portfolio ultimately can perform better than last year?
We as a house would prefer IT Services, Banking & NBFCs, cyclicals, Pharma, Consumers and some selected names in speciality chemicals & Agri, Textiles and sectors one should avoid would be PSUs banks.
Q: PM Narendra Modi said India received record FDI in 2020 despite pandemic and kept $100 billion target for next 2 years? What is the FDI amount in 2020 so far and what were those sectors attracted the FDI. Do you expect more FDI in 2021 than 2020 and what are those sectors can attract FDI in 2021?
As per the official reported numbers, India has received $43.5 billion FDI during the January-September 2020 period, largely attributed to Jio Platform and followed by Reliance Retail and sectors which have received maximum flows are services segment, computer software and hardware, telecommunications, trading, construction development, automobile, chemicals, and pharmaceuticals. I expect the trend would continue in 2021 as well and we may surpass the 2020 numbers led by further relaxation of government norms and opening up of sectors like defence, media, insurance among others.
Q: What are major key triggers in 2021 that can continue supporting the market and can take the market to new levels?
Earlier-than-expected rebound in economy, timely launch and faster coverage mass vaccination program coupled with continuation of easy monetary policies, global liquidity , weak dollar and more pro-growth government policies like PLI schemes would support the market uptrend in 2021.
Q: What are those expected key risks one should keep in mind for 2021, given the experience of 2020? Especially after finding new strain of coronavirus in the UK, do you think coronavirus is still a major concern going in to 2021?
As valuations are getting higher in some pockets, faster recovery in earnings would be the key risk. Also major negative surprise in coronavirus second wave and tighter monetary policies are the risks to watch out for.
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