Benchmark indices Sensex and Nifty have touched new highs despite macroeconomic concerns. What are the reasons?
Macroeconomic concerns are behind us. There has been a ‘v shaped’ recovery in the global and domestic economy, shaped by conducive and timely monetary & fiscal policies. Markets are forward looking and are looking at a strong growth recovery into calendar year 21-23 period, wherein earnings CAGR could be 30%.
The abundant global liquidity and US$ weakness is helping channelise flows into riskier asset classes and emerging markets. This could continue for a fair bit of time, as the global economy heals slowly but steadily from covid impact.
Your outlook for 2021
The corporate balance sheets are mending, operating leverage and financial deleverage will play through while the lending institutions are in well capitalised too. The investment rate in the economy could pick up steam and the twin engines of consumption and investments can fire together for the next few years.
Inflation is less of a worry and so is capital with foreign investors warming up strongly to the India story, particularly FDI. Covid in some sense has been a trigger for the government to take aggressive measures to spur growth in terms of reforms, liquidity enhancement, fiscal support to pained sections of economy- both corporates and public. The crisis in a way has unshackled the governance in a way and enabled bold decision making. The broad based rally is expected to continue in strength with active participation by the mid and lower end of the cap curve companies in the markets.
Sectors to watch out for in 2021
A more diversified portfolio approach across sectors and market cap curve could help to play the economic recovery better. However, consumer discretionary and financials could be better placed amongst choices.
Which category of funds should MFDs recommend at this juncture?
Asset allocation with a higher tilt towards mid and small cap schemes could be rewarding, as there is a lot of value still left here.
