Aditya Birla Sun Life Mutual Fund expects 2020 to a be a year of consolidation and transition.
“Overall, CY20 could likely be a year of consolidation as the economy and earnings catch up with the markets and transition as the broader markets starts participating,” said Mahesh Patil, Chief Investment Officer-Equity, Aditya Birla Sun Life Mutual Fund.
He was speaking at an event to discuss Market Outlook 2020 held in Mumbai.
Patil pointed out that the increase in risk aversion had led to a decline in credit growth - the lifeblood of an economy.
However, he believes that Indian economy has bottomed out and must see a gradual recovery going forward as the worst is behind us.
He envisages that India’s GDP will grow at 6.0-6.25 percent in FY21 which would be higher than other major economies.
Corporate earnings growth in India, which was depressed earlier, is likely to pick up in line with improvement in the economy.
“FY21E Nifty50 earnings growth is projected to be around 23 percent,” Patil said.
He expects sectors such as auto, telecom, corporate banks and pharma, which had seen a cyclical downturn, to see recovery.
“Considering current valuations, the risk-reward is fairly balanced and returns over a one-year time frame could be in the high single digits,” Patil said.
He further added that market could offer reasonable returns to long-term investors during the economic recovery.
Patil suggested that any corrections in the market should be bought in to while maintaining a balanced asset allocation.
He believes, as the economy recovers, earnings growth of mid-and-small cap should also pick up as they have a higher linkage to the domestic economy.
“We could see a transition from a narrow rally to broader market participation which provides an opportunity in the event of a convergence,” Patil said.
Select themes of interest to the fund house are consumption (particularly low-ticket consumer discretionary) as the country continues to see a shift from unorganized to organized.
Further, banking and financial services (particularly private and corporate banks) as the dislocation in the financial system is expected to remain and they will continue to market share.
According to Patil, pharma will also remain a favoured sector due to attractive valuations, and cement may be driven by an expected pick up in housing and infrastructure.