India still is not out of woods as far as the Covid-19 pandemic is concerned. That said, the latest macro and micro data are encouraging. However, some key worrying points remain – asset quality at lenders, stress in micro, medium and small enterprises (MSMEs), fiscal deficit, inflation, job creation etc.
A bull market, though, never requires all worrying points to be eliminated. Outcome of the US Presidential elections was a short-term worry, but all concerns have been put to rest now.
Going by the September 2020 quarter results, financials have shown signs of overcoming the issues caused by Covid-19 by growing collection efficiency, adequate provisioning, and the fresh capital cushion lent to balance sheets.
Samvat 2076 has been a rollercoaster ride for markets, which has taught investors some lessons. First, being a contrarian helps. Take profits when the markets rise and start buying on extreme pessimism. Second, it pays to stick to better-known and better governed stocks rather than spreading the portfolio among several stocks that are difficult to monitor. Third, one can take time to buy (by way of SIP or staggered buying), but exit ideally should not be too staggered. Lastly, don’t try to find multi-baggers every now and then. Stocks turn multi-baggers over time and every stock simply cannot be bought with that sole objective. There will be winners and losers in every portfolio.
The technical aspects of India markets continue to be favourable. Global stimulus will ensure seamless capital flow to EMs, low cost of capital, benign commodity and crude inflation, and the US dollar’s sideways or downward direction could lead to rerating of stocks and Nifty price-earnings ratio (P/E). India has a few strong growth enablers – a robust rural market in general and the potential market share gain in global manufacturing stemming from the anti‐China sentiment.
Markets have witnessed a severe polarisation in the past few quarters, though the mid-and small-cap segments, after going through a tough time, have handsomely bounced back in the last few months. This polarisation can again come back in fashion, if the economic recovery is not broad-based.
Outlook for Samvat 2077
The markets could face some profit taking after the final results of the US presidential elections sink in, but that will be closer to the end of calendar year 2020. This period also coincides with calendar year-end when tax selling by foreign investors and could last a few months, post which the markets could remain choppy. In the second half of calendar year 2021, we may witness some sustained rise in the indices. That said, the hunt for Covid-19 vaccine and any positive news on that front will be a positive for the markets.
Sectorally, the PSU index (both on the NSE and BSE) has a fair chance of coming back in favour. Banks seem to be headed higher albeit with intermittent corrections. Metals could be a surprise performer. Automobiles could take some more time to make a sustainable bottom. Fast moving consumer goods (FMCG) and oil & gas could underperform. Information technology (IT) and healthcare have some more upside, but repeating Samvat 2076 performance will be difficult.
During Samvat 2077, investors need to look at asset class diversification, sector diversification, spreading investments over time (by way of SIP or staggered investments). Also, going the way global investing has picked pace, high networth individuals (HNIs) need to look at this asset class to check whether this suits their risk profile and skillset.
After a tumultuous Samvat 2076, we can look forward to a more sedate but selectively rewarding year.
Deepak Jasani is head of retail Research at HDFC Securities. Views are his own.