Positive Outlook for Economy and Equity Markets in 2021
There is quiet optimism about the CY21 outlook, for both the economy and the equity markets. Compared to the narrow market movements in Calendar Year (CY) 18 and 19, where only a handful of large-cap stocks did well, the rally has been more broad-based in CY20; the BSE Small-Cap index gained nearly 30 per cent; the Mid Cap Index is up 20 per cent vis-a-vis the losses it incurred in CY18 and 19.
Key positive developments
Some of the other developments at corporate level and ground-level changes, writes Sachin Shah (fund manager at Emkay Investment Managers Limited) are also pointing towards an all-round-recovery in the economy and earnings growth.
- The COVID-19 pandemic has brought about cost efficiencies and balance sheet discipline across sectors/companies. Visible green shoots and an uptick in aggregate demand will set India Inc. on a multi-year and strong earnings growth trajectory.
- Despite the prolonged lockdown, the organised players in each of the businesses/sectors have restarted their operations very quickly and have displayed a lot of resilience. This has helped the organised sector to gain market share as the unorganised market remained saddled due to labour/capital challenges.
- COVID-19 had a minimal impact on rural India. Due to two good seasons of back-to-back monsoons, the green shoots in rural India were evident from late CY 2019 (Nov-Dec) and early 2020 (Jan-Feb), followed by focused spending by the government in rural areas, which created a very buoyant rural economy.
- In the post-Covid environment, India is gradually emerging as a scalable and credible alternative to China. In some sectors, like chemicals and pharmaceuticals, the first signs of advantage in India are already visible by way of higher enquiries and new orders. In response to the above opportunity, the government has announced the PLI (production linked incentive) schemes for 13 sectors. Each of these sectors has a huge potential to either scale-up exports or replace imports with domestic manufacturing for internal consumption.
- Acceleration of digital adoption across the value chains and stakeholders - customers/suppliers/employees/investors have been an additional catalyst that will drive efficiencies across businesses.
- There have been very good foreign flows. In just three months (Oct-Dec, 20) FIIs have invested a whopping $18 billion+.
- There has also been an uptick in bank deposits, the growth in total bank deposits is now at 11 per cent versus around 8 per cent a couple of years back. This leads many to believe that the overall savings rate in the economy may be on a higher side, a good lead indicator for aggregate demand to show an uptick.
