Healthy earnings, FII flows can drive double-digit gains in 2021, says Prabhakar of IDBI Capital

Prabhakar expects financial services, telecom, auto, FMCG and IT stocks to outperform the benchmarks in the new year.

December 17, 2020 / 12:15 PM IST
 
 
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AK Prabhakar, Head of Research at IDBI Capital Markets, doesn’t get drawn into the raging midcap versus largecap debate. He believes that in 2021, performance will be sector and stock-specific. He expects financial services, telecom, auto, FMCG and IT stocks to outperform the benchmarks.

In an interview to Moneycontrol's Sunil Shankar Matkar, Prabhakar identifies inflation, delay in the improvement of growth and tensions with China as key domestic risks in the new year. Edited excerpts:

Q: The benchmark indices gained 12 percent in 2020 but have rallied 80 percent from the March lows. Do you expect the market to report double-digit gains in 2021 as well?

There is a good probability of a significant improvement in earnings in FY22. Confirmation of the same and FII/DII flow remaining healthy can drive double-digit gains in 2021. However, we do not expect the move to be one-way as it has been post-March this year.

Q: Broader markets outperformed the frontliners in 2020. Most experts believe broader markets will outperform the benchmark indices in 2021. Do you agree and why?

Close

We believe that 2021 performance will be sector-specific and stock-specific rather than midcaps versus largecaps.

Q: Which are the sectors that can rally in the coming year and which are the ones that investors should steer clear of?

We expect stocks in financial services, telecom, auto, FMCG and IT to outperform the benchmarks in 2021.

Q: Almost a similar number of companies launched IPOs in 2020. Do you expect the primary market to remain strong in 2021 too?

Yes, we expect issuances in life insurance, AMC, consumer/retail, speciality chemicals and PSU, which will make 2021 issuance higher in value terms than those in 2020.

Q: What are the key risks and triggers to watch out for in the coming year at home and globally?

US' stance under the new president on trade negotiations with China, higher than expected impact of COVID-19 (either due to more waves or delay in vaccination) and softness in FII flows in emerging markets and India remain global risks. As regards domestic factors, inflation, a delay in the improvement of growth and resumption of tensions with China remain key risks.

Q: What are your top five bets for 2021?

HDFC Life: Life insurance is a structural growth story in India and HDFC Life, being the market leader with strong management, would benefit from the same.

Bharti Airtel: Bharti has a strong market share in the premium subscribers (postpaid /high pre-paid) which places it well to take advantage of increasing data consumption and expected increase in ARPU (average revenue per user). The company expects ARPU to structurally improve from the current levels, which augers well for its earnings growth.

Nestle India: Nestle will be least impacted by disruption from COVID-19 as 90 percent of its product portfolio falls under the essential category. In the packaged food category, industry tailwinds to be positive in milk products and Maggi segment (75 percent of Nestle's revenue). Nestle, being the category leader in 85 percent of its product portfolio, will continue to gain market share, driven by differentiated brand positioning and a superior distribution network. The company enjoys superior pricing power.

Alembic Pharma: US sales (43 percent of FY20 revenues) grew at around 12 percent CAGR in FY16-20 to Rs 2,000 crore on the back of consistent product launches including limited competition products. Despite being a late entrant, the company has done reasonably well with a product basket of 198 ANDA filings (67 pending final approval). For full year FY21, the company plans to launch 15-20 new products.

Bayer CropScience: The company enjoys a unique position in the domestic agrochemical space due to its ability to offer new innovative products, technologies, processes and services. The company has strengthened its presence by introducing customer-centric solutions. These initiatives have helped the company to increase its market share in crop protection over the years. Bayer Crop's acquisition of Monsanto India resulted in a bigger entity in agrochemical and seed.

Disclaimer: The views and investment tips expressed by investment 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.
Sunil Shankar Matkar
first published: Dec 17, 2020 12:11 pm

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