Dipan Mehta, Director at Elixir Equities Pvt Ltd, is of the view that sectors sensitive to the economy such as Banks, Commodities and Industrials will be in focus ahead of Budget 2021. He also expects a revival of the broader market
In an interview with Moneycontrol’s Kshitij Anand, Mehta said that he finds the trends in the primary market disturbing because he doesn’t see the logic in the present system of significantly higher reservation for institutional investors at the expense of HNIs and retail investors.
edited excerpts:Q) What is your outlook for 2021?
A) ‘Unpredictability’ is the new normal and everyone has to adapt accordingly. Excessive risks need to be avoided at these levels and these valuations. Diversification of portfolio and asset classes will bring peace of mind and a feel-good factor.
Q) What are your expectations from the Budget?
A) Recently, Budgets are all about expense allocation and very little about changes in direct or indirect taxes. I don’t remember any of the proposals of the last Budget and I am sure proposals of this one will also be soon forgotten.
I would not like to build any expectations and would be pleasantly surprised if the speech is short and there are no new taxes or tinkering with existing taxation of capital gains and dividends.
Q) Which sectors are likely to remain in focus ahead of the Budget?
A) Broad market revival is expected and sectors sensitive to the economy such as Banks, Commodities, and Industrials will be in focus. These have underperformed for many quarters and this trend may reverse.
Also, globally there is a shift of preference towards value stocks, hence, they may also do well. Scaling up of the capex cycle after years of under-investment by the private sector may be an interesting theme to watch out for.
Q) COVID is not over yet but vaccine news is comforting. The uncertainty is likely to linger in the coming year as well. What are the big risks for equity markets that investors should keep an eye on?
A) Central Banks across the world have injected record liquidity and that has led to a surge in risky assets. The biggest risk to equities is monetary tightening, which may be accompanied by a rise in inflation, signs of which are already visible.
Regulatory action against large tech companies can sour sentiment towards global equities and repercussions may be seen in our markets through lower foreign inflows.
Q) Data suggests that FIIs have invested more than US$ 20 bn in Indian equities in CY20. Will the momentum continue in the coming year as well?
A) Weak US Dollar may give impetus to Dollar carry trade which will sustain FII flows. Moreover, there is a line of thought that the outperformance of US equities may reverse, and other markets, especially emerging markets may benefit.
The current trend in ETF based investing also drives flows into Indian largecaps. Apart from sharp monetary tightening by Central Banks and a rise in debt market yields, foreign flows will be largely supportive for Indian equities.
Moreover, with the broad market rally, many mutual funds have started to outperform their benchmarks and that may attract domestic savings back into mutual funds.
Office activity has picked up and DIY investment trend may moderate. This will drive incremental savings into mutual funds rather than direct secondary market investments. A sharp correction may also shake out weak players.
Q) Primary markets hogged the limelight in 2020 with 16 mainboard issues collectively raising more than Rs 30,000 crore. What do you foresee for the year 2021, and any big issues to track?
A) The trends in the primary market are disturbing. I don’t see the logic in the present system of significantly higher reservation for institutional investors at the expense of HNIs and retail investors.
This discrimination is leading to HNIs resorting to IPO funding which is risky and distorts the true demand for IPOs and also leads to frenzied speculation post listing. Why should Institutions be favoured over non-institutional investors? The colour of their money is the same.Q) What is your advice for investors for the year 2021? Things to keep in mind while investing/trading especially for first-time investors?
A) Diversification of portfolio sector-wise and on the basis of size is important to reduce risk. Another mantra should be to resist the temptation of diluting the quality of your portfolio.
This is easier said than done but in bull markets, this is one learning which is quickly forgotten in the momentum and noise of the market.
Q) Which sectors are likely to hog the limelight in the year 2021?
A) Banks / NBFCs especially midcap ones may hog the limelight. Software and pharma should continue their super run and they seem to be back in a structural bull market, where there may be corrections but over the next 3-5 years, we should see compounding of earnings. Investors should be on the lookout for digital businesses that are fairly valued.
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