- SAMVAT 2076, though looked good for markets, was a bad year for all of us due to a black swan event – the COVID pandemic. NIFTY is up ~5% yoy since last Diwali.
- In between though there was a sharp fall in markets by ~35% in March 2020 and there was complete lockdown in economic activities in April- May 2020.
- Stepping into Samvat 2077, the threat of the pandemic is not over yet and the fear of a second/third wave in big geographies is a potential risk.
- The pandemic has accelerated the shift towards a digital economy. In Samvat 2076 the leadership shifted from banking to the technology sector.
- India has a chance to come out stronger and report healthy growth in Samvat 2077,provided we don’t see a big second wave of Covid cases.
- The question that is confronting an average investor’s mind is how soon we can return to normal economic growth
- US markets have rallied post election results.
The Year that was…
- Net inflows into equity MF in last 12 months were to the tune of Rs.44,000 cr.
- FIIs who were net sellers till April 2020 have since then turned net buyers. They were net sellers ~Rs.35,000 cr in last 12 months largely due to a large sell-off of Rs.65,000 cr in March 2020.
- The total AUM of the mutual fund industry increased to in Rs.27.7 lakh cr September 2020 as compare with Rs.26.1 lakh cr in October 2019.
- Gold prices have witnessed a 24% gain this year. The increased uncertainty over the last few months, which was fallout of the corona virus outbreak & the US elections.
- Consumer price index (CPI) accelerated to 7.34% in September driven by food inflation, well above the RBI range of 6-8%.
- India’s wholesale inflation (WPI) firmed up to a seven-month high of 1.32% in September.
- Index of Industrial Production (IIP) contracted by 8% in August
- GDP in India contracted by 23.9% in Q1FY21.
- Passenger vehicle sales decreased to 249,860 units in October, as Diwali sales will come in November this year instead of October last year. Two-wheeler sales declined 26.82 per cent to 10,41,682 units last month. Commercial vehicle sales also slipped 30.32 per cent to 44,480 units, Tractor sales, however, grew by 55 per cent to 55,146 units last month.
- Goods and Services Tax (GST) collections in October stood at over Rs.1.05 lakh cr, crossing for the first time Rs.1 lakh cr mark since February this year.
- Brent crude oil prices which crashed this year has over the last few months consolidated around $40/bbl.
The year ahead…
- As we advance towards getting the vaccine (by middle of next year) and economy gets back to normalcy, we can expect the economy driven sectors to outperform the defensives in Samvat 2077. Banks, NBFCs, automobiles, oil & gas, telecom, utilities, capital goods, cement and metals could come into focus.
- Since most of the economy driven sectors are prone to market correction one should have an accumulation strategy in them rather than investing at one go.
- IMF projected India’s gross domestic product (GDP) to plunge in FY21 by 10.3%, revised down since its June forecast of 4.5% drop.
- Whether the festive season provides a boost to the flagging economy needs to be seen.
- We recommend focus on quality business with quality management which should recover sharply as sentiments improve.
We have been impacted by low GST & tax collections, de growth in GDP & IIP numbers over the last quarter. Higher than expected retail inflation and the gap with WPI numbers aggravate concerns of a deflation. We are in the midst of a global pandemic, though we are gradually unlocking & I believe that we have already overcome the worst of times & expect things to only improve from here across the globe. Fund flows on the FII remain strong though we are seeing some profit booking for DIIs. We strongly advise investors to continue their SIPs in equity funds & if possible increase the amount. This is a very good buy on dips market & should be bought in a staggered manner.
Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 12 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.