Year 2020 has been a roller coaster ride for the equity market due to heightened volatility throughout the year. Overall, equity market was dominated by the bulls as benchmark indices Nifty 50 and Sensex surged around 8% each in December at the end of 2020. Positive global cues including hopes of stimulus support from the US government and reports of a possible roll-out of a covid-19 vaccine boosted the market.
On the domestic front, the market was buoyed by a rally in consumer durables, capital goods, realty and information technology.
Overall, fund managers believe markets will overall remain positive in 2021 with a few short term corrections.
What to expect
Ashutosh Bhargava, Fund Manager and Head Equity Research, Nippon India MF
- A sharp rebound in 2021 GDP led by manufacturing and infrastructure sector
- Corporate profits have been better than economic growth rebound. This will continue in 2021 on improved operating leverage and strong pricing power across sectors
- Cost of capital to remain low with adequate liquidity
- Despite elevated valuations, we expect equities to deliver strong returns in 2021 although there will be occasional volatility and returns will not be linear
Krishnakumar, CIO- Equity, Sundaram MF
- Broad based rally is expected to continue in strength with active participation by the mid and small cap companies in the markets
- 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 there is anticipation of a strong growth recovery into calendar year 2021-23 period, wherein earnings CAGR could be 30% CAGR
- 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
Neelesh Surana, CIO, Mirae Asset MF
- Believe that the bullish trends will continue given massive unleashing of liquidity both by the government and central banks
- On the domestic front, positive macros factors like healthy balance of payments, low interest rates and favourable monsoon outweigh concerns
- Reasonable valuations from a long-term view, i.e., 3-year viewpoint considering low interest rates
- However, markets can correct/consolidate in near term given the strong rally, but overall glide path in 2021 will remain positive
- India is at the cusp of multi-year growth
Srinivas Rao Ravuri, CIO PGIM India MF
- Strong recovery in GDP growth and corporate earnings in financial year 2022 due to low base
- Strong flows from FIIs and low interest rates are making equities attractive
- While everything seems to be going well for equity markets right now as reflected in current stock prices, this may not be a great time to invest more into equities or being fully invested in equities only
- Equities will be the best asset class to generate superior returns, especially in low interest rate regime
- However, there are challenges in the economy and also in a few areas of the stock market as highlighted by massive over subscription to IPOs
Commentary on sectors
Ashutosh Bhargava, Fund Manager and Head Equity Research, Nippon India MF
- Mid-caps may outperform large caps in 2021 on improved breadth of economic activity
- Sectors like materials, financials including insurance, infrastructure including utilities and tech may be the sectors to watch out for in 2021
Krishnakumar, CIO- Equity, Sundaram MF
- A more diversified portfolio approach across sectors and market cap could help to play the economic recovery better. However, consumer discretionary and financials could be better placed amongst choices
Neelesh Surana, CIO, Mirae Asset MF
- On sectoral basis, we have exposure to financials including insurance, healthcare, consumer discretionary, IT, and telecom. In addition, we also have representation to ideas which are still in the deep value zone
Srinivas Rao Ravuri, CIO PGIM India MF
- Outlook for IT and pharma sectors clearly appears to be positive as they are benefitting from growing digitization and focus on healthcare including export opportunity for Indian companies.
What to recommend
Ashutosh Bhargava, Fund Manager and Head Equity Research, Nippon India MF
- Mid cap or mutli cap funds should be preferred for next 12 to 24 months. However, given the elevated valuations and recognizing challenges to our own forecasting ability, some sizeable allocation in asset allocation funds like balanced advantage fund and/or multi asset fund. Diversification is a must when it comes to portfolio allocation
KrishnaKumar, CIO- Equity, Sundaram MF
- 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
Neelesh Surana, CIO, Mirae Asset MF
- A well-crafted balanced allocation towards equites with about 70% allocation to large cap funds
- Further, appropriate allocation to midcaps, say at about 30%, would help capitalize on momentum in the small-and-mid cap category
Srinivas Rao Ravuri, CIO PGIM India MF
- Diversified equity funds are the preferred choice for investors with reasonable appetite
- Considering the volatile nature of the markets, dynamic asset allocation funds are preferred for investors with lower risk appetite
