Our journey into 2021 has commenced on a vibrant be aware, with most of our conversations now revolving round vaccines and lives returning to finish normalcy. The yr 2020 was a blur which concerned most of us being confined to the areas of our houses because the pandemic ensured lockdowns, the worry of an intermittent recession changing right into a full blown one, stress on firm steadiness sheets as companies had been shut and a bunch of liquidity measures wanted by international central banks to make sure the economies don’t slip right into a deeper recession.
As we transfer into 2021, we’re witnessing three key transitions from an financial stand-point:
From virus to vaccine: Whereas most of our discussions in 2020 revolved across the virus and the contagion impact, 2021 introduced cheer as we start inoculation and the method of returning to normalcy. In India, we presently have two vaccines (Covishield and Covaxin), which shall be rolled out in a phased method to residents (throughout the age bracket) within the battle in opposition to the virus.
From recession to restoration: In 2020, India reported its worst quarterly GDP print as an entire lockdown meant closure of enterprise exercise. The Q1FY21 GDP was reported at -23.9%, thereby dragging FY21 progress to -7.5% despite a restoration within the subsequent two quarters. In comparison with this, the Indian financial system is more likely to report a GDP progress of 11.5% in FY22.
from lockdown to reopening of economies: From March 2020, we witnessed probably the most stringent lockdown in comparison with any international financial system. Because the instances peaked in September 2020, the gradual reopening of companies introduced motion of products and companies, bringing aid to companies affected as a result of lockdown.
Likewise, from an fairness market perspective, we’re witnessing three key transitions:
From liquidity to fundamentals: In 2020, central banks pumped in liquidity price 13-20% of GDP inside the first few months of the disaster, which result in a robust rally in equities throughout the globe, together with India (the Nifty 50 is up 75% from the March 2020 lows). In 2021, we count on earnings estimates of corporations to rebound in a significant manner, as mirrored in a 5% decline in FY21 to expectations of a 32% progress in earnings in FY22 (Nifty 50 Bloomberg estimates).
From pe expansion-driven rally to earnings-driven surge:Whereas share value actions in 2020 was primarily pushed by growth of price-earnings (PE) multiples on account of robust international liquidity, we count on stock-specific earnings upgrades to drive share costs in 2021.
From unorganized section to massive manufacturers: Within the post-pandemic period, we count on key manufacturers inside every sector, or the business leaders, to dominate the restoration course of. One of many largest biscuit producers gained vital market share over the previous one yr on the expense of the unorganized sector, whereas a prime personal financial institution continued its dominance and gained market share on the expense of its public sector friends. We count on the development to amplify as shopper’s desire in the direction of manufacturers, which was accentuated through the lockdown, continues to achieve momentum going forward.
On internet steadiness, whereas the story of 2020 was extra about liquidity, 2021 will doubtless see a transition in investor behaviour as the main focus shifts again to market fundamentals. With most sectors now performing at pre-covid ranges and investor expectations operating excessive, we imagine sustainable investor returns from hereon will come by way of in these shares that see a robust earnings supply, going ahead. Therefore, a mixture of knowledgeable cash supervisor, together with an astute inventory choosing strategy, is the traders’ finest guess for the highway forward.
Supply: Bloomberg, Axis AMC Analysis
Trideep Bhattacharya is senior portfolio supervisor , various equities, at Axis AMC.