Four lessons for investors from Samvat 2076 and the Road ahead for markets


India still isn’t out of woods so far as the Covid-19 pandemic is concerned. That said, the newest macro and micro data are encouraging. Alternatively, 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 USA Presidential elections used to be 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 relatively than spreading the portfolio among several stocks that are difficult to monitor. Third, one can take time to shop for (by means of SIP or staggered buying), but exit ideally will have to not be too staggered. Lastly, don’t try to find multi-baggers from time to time. Stocks turn multi-baggers through the years and each and every inventory simply cannot be bought with that sole objective. There will be winners and losers in each and every portfolio.

The technical aspects of India markets continue to be beneficial. Global stimulus will ensure seamless capital waft to EMs, low cost of capital, benign commodity and crude inflation, and the USA dollar’s sideways or downward direction could lead to rerating of stocks and Nifty price-earnings ratio (P/E). India has a couple of 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 prior to now few quarters, though the mid-and small-cap segments, after going through a hard time, have handsomely bounced back in the previous few months. This polarisation can again come back in fashion, whether the economic recovery isn’t broad-based.

Outlook for Samvat 2077

The markets could face some profit taking after the last results of the USA 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 final a couple of months, post which the markets could remain choppy. In the second one 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 reasonable chance of coming back in favour. Banks appear to be headed higher albeit with intermittent corrections. Metals can be a surprise performer. Automobiles could take some more time to make a sustainable backside. 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.

All the way through Samvat 2077, investors want to look at asset class diversification, sector diversification, spreading investments through the years (by means of SIP or staggered investments). Also, going the way global making an investment has picked pace, high networth individuals (HNIs) want to look at this asset class to check if this suits their risk profile and skillset.

After a tumultuous Samvat 2076, we will look forward to a more sedate but selectively rewarding year.

Deepak Jasani is head of retail Research at HDFC Securities. Views are his own.

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