The year 2020 brought with it pandemic COVID-19, which forced economic activities around the globe to be shut for a large part of the year. In India, the government announced a complete shutdown in March and the Unlock process started in late May-June
With positive economic recovery outlook for 2021 and increase in government spending, experts feel cyclicals, industrials and consumption sectors could outperform in the year ahead.
Though the risk of virus cases escalating may remain till the complete vaccination, they said.
"2020 saw strictest lockdown with shutdown of major economic activities, while 2021 will see complete opening up of the economy. 2021 will also see the vaccination theme playing out across the sectors. With the assumption of opening up the economy will open the new doors of growth engines which will likely to see upgrades in corporate earnings. Lower interest rate environment and higher fiscal spending will continue to support the equity market," Neeraj Chadawar, Head - Quantitative Equity Research at Axis Securities told Moneycontrol.
IT and Pharma outperformed all other sectoral indices in 2020 with 57 percent and 61 percent gains on respective indices.
Rest of the sectors including Auto, Capital Goods, Consumer Discretionary, Energy, FMCG, Metals and Industrials gained 10-18 percent.
Whereas Banks, Oil & Gas and PSUs underperformed, ending the year with negative returns, even though all sectors rallied sharply from March 23's low.
Experts feel in the coming year, with the opening of full economy in India and also globally, Banks, NBFCs, Infra & allied, IT and Metals are expected to outperform.
"Improvements in IT companies lead by digital transformation will continue throughout 2021. Companies benefitting from higher infra spending will also exhibit growth on account of better macro conditions and improved government finances. Credit space should also see a strong comeback post current uncertainties on the NPA status," Shailendra Kumar, Chief Investment Officer at Narnolia Financial Advisors told Moneycontrol.
Neeraj Chadawar of Axis Securities said value plays like Metals, Banks, NBFCs and others have started delivering solid returns but also the small and midcap space marked by discretionary consumption, retail, autos and others have delivered returns. Hence, "combination of the two themes continues to deliver the most rewarding returns."
The global economy as well as the Indian economy is expected to recover substantially in 2021 as compared to 2020. "In these phases of economic recovery the sectors which would widely contribute would be banking sector, energy sector, industrial sector and consumer discretionary. In the period of economic recovery which is driven by huge government spending we can expect cyclical stocks to perform better than defensive sectors," Ajit Banerjee, Chief Investment Officer at Shriram Life Insurance said.
As a prudent investment strategy, he advised to maintain a balanced exposure between cyclical sector, defensive sector and sensitive super sector which would help to maintain a balanced overall portfolio return as opposed to skewed portfolio allocation in favour of one particular sector, in the coming year.
With the consistent support from government through several measures to boost the economy along with likely lower interest rates for a longer period and continuity in global stimulus packages, 2021 is expected to a good year for the emerging markets including India.
"The policy reforms by the government are likely to continue in 2021, the market will consistently watch the development on the policy front. 2021 budget likely to be an interesting budget which will likely be an infrastructure heavy & will decide the further roadmap of economic growth," Neeraj Chadawar said.
Amit Jain, Chief Strategist - Global Asset Class at Ashika Group will continue to bullish on Infrastructure space along with Real Estate, Metal & Selected PSUs. "In fact, he had asked investors to shift from IT and Pharma, to these sectors. If this liquidity driven markets rally continues, then we may see further expansion of PE multiple in these sectors," he said.
Recently, the government announced production linked incentive scheme to boost the manufacturing space and the same is expected to help India become major manufacturing hub in coming years.
"By end of March, we will have more clarity on companies of sectors like auto, auto component, chemicals, and food processing benefitting from proposed production linked incentives (PLI). PLI is already helping electronics contract manufacturing space," Shailendra Kumar said.
Another interesting space is the whole ecosystem surrounding 5th generation mobile network, he feels. "Just the way 4G brought massive opportunity in consumer tech, 5G is expected to bring in large efficiency gains to the manufacturing sector," he said.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.