These 6 sectors are a must in young investors' portfolio, says Nimish Shah of Waterfield Advisors

Being cautious on what you buy with the optimism of good growth in these quality investments is the way to look at 2021.

January 06, 2021 / 12:29 PM IST

IT stocks should be included in one's portfolio. This sector should form around 15 percent of the overall equity portfolio. Financials and Pharma are the other two must-have sectors and should have over 15-20 percent allocation, said Nimish Shah, Chief Investment Officer - Listed Investments at Waterfield Advisors in an interview to Moneycontrol's Sunil Shankar Matkar.

Shah feels overall exposure in PSU stocks should be minimal in the equity portfolio, except in very good performing PSUs. "This could be across sectors like banks, oil marketing companies, etc. where there could be regulatory interventions and dependence on policies for product pricing/profitability," he said.

The last 20 years have seen India receive $500 billion under FDI flows, averaging to $25 billion per annum. Up to Q2FY21, the FDI inflows were of $30 billion. Nimish feels sectors like Services, IT, Telecom, and Chemicals are likely to see continued FDI flows.

Edited excerpts:-

Q: If an investor with 30+ age wants to invest Rs 5-10 lakh in 2021, where should he/she focus more in a portfolio next year and among equity, which sectors he/she should focus more?

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It is important that investors do not enter 2021 with the Recency Bias of the 2020 market experience. Keeping faith in the long-term economic growth of India, investments should be made in sectors that will participate in this long-term (5-10 years) growth story. A young investor has a long road ahead that gives an opportunity to create serious wealth. Invest in equity only if there is not going to be any requirement, except for real emergencies, in the next 3-5 years. Must have sectors in a portfolio are Banks, Pharma, IT, Insurance, Specialty Chemicals and Consumer Goods.

Q: The year 2020 can be remembered for a longer period as it showed extreme pessimism as well as extreme optimism. What is your overall reading on 2020 and do you expect a double-digit return in 2021 also? If yes, why? Should one also prepare for big selling pressure in the market in 2021 after witnessing fresh record high levels in 2020?

While 2020 has seen the extremes of pessimism and optimism, the liquidity infused by global Central Banks has been staggering. This has led to asset price inflation as capital markets have witnessed massive FII flows. All assets, equity, debt and gold have seen substantial price increases. Real Estate has also witnessed movement as end consumers have started buying due to attractive prices, schemes and the one-off reduction in stamp duty rates. Any sharp reversal in flows could surely see markets correct.

2020 saw the return of optimism of growth while 2021 should see the return of actual growth. If growth does not return then the markets could see a good correction and hence it is very important to select stocks or fund managers who invest in good quality and low leverage companies with high growth potential. Being cautious on what you buy with the optimism of good growth in these quality investments is the way to look at 2021.

Q: What is your biggest lesson learned from 2020 and what do you want to avoid in the coming year? Also what is your advice to investors with respect to 2021?

This being an event that has come after a few generations, investors have been caught off-guard. The largest learning has not been the impact of the event, but it has been the sharp and quick recovery in equity markets across the globe. The tenacity of the markets to absorb bad news and quickly look ahead for growth opportunities is learning. Literally giving credence to the saying that in every adversity there is an opportunity. And, initially, we saw sectors like Pharma, Healthcare and IT benefit followed by a broad-based rally across cyclical. Investors hardly got any time to react and many missed the bus of investing in equity during the April to July 2020 period.

Q: What are those key sectors one must add and avoid in 2021's portfolio so that it ultimately can perform better than last year?

IT sector should be added – this sector should form around 15 percent of the overall equity portfolio. Financials and Pharma are the other two must-have sectors and should have over 15-20 percent allocation to portfolio.

Overall exposure in PSU stocks should be minimal in the equity portfolio, except in very good performing PSUs. This could be across sectors like banks, oil marketing companies, etc. where there could be regulatory interventions and dependence on policies for product pricing/profitability.

Q: PM Narendra Modi said India received a record FDI in 2020 despite the pandemic and kept $100 billion target for next 2 years? What is the FDI amount in 2020 so far and what were the sectors that attracted the FDI. Do you expect more FDI in 2021 than 2020 and what sectors can attract FDI this year?

Over the last 20 years, India has received $500 billion under FDI flows, averaging to $25 billion per annum. However, FY18, FY19 and FY20 have seen FDI inflows of $44.8 billion, $44.3 billion, and $50 billion, respectively. Up to Q2FY21, the FDI inflows were of $30 billion. Sectors like Services, IT, Telecom, and Chemicals are likely to see continued FDI flows.

Q: What are those expected key risks one should keep in mind for 2021, given the experience of 2020? Especially after finding a new strain of coronavirus in the UK, do you think coronavirus is still a major concern going into 2021?

The major risk is now on healthcare and how an event can de-rail the world. Investment portfolio being ready for any such future shocks is important. Investors look at Asset Allocation, but importance should also be given to the Risk Pools in the portfolio. Clients should divide their portfolios into three Risk Pools – Conservative Risk Pool, Market Risk Pool and the Growth Risk Pool. 10-15 percent of the overall portfolio should be invested in a 'Conservative Risk Pool' where the investments are very liquid and have a minimal mark-to-market impact. This is the 'Safety Chest' where safety should take precedence over returns.

The after-effects of coronavirus are likely to persist for some years as the fight between the virus and the medical world continues. While round 1 has been won by the virus, the next round will depend on the efficacy of the vaccine across all virus mutations and the speed at which people get the vaccine.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that 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: Jan 6, 2021 12:29 pm

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