Atul Bhole, SVP - Investments at DSP Investment Managers, has over 10 years of experience in capital markets. He is of the view that new investors would be better off investing in good quality and growing companies or a mutual fund consisting of such companies rather than trying their luck through trading.
Bhole said that sectors like housing finance, real estate, consumer discretionaries related to home improvement space, among others, can be in focus in Budget 2021, he said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpts:
Q) It was a volatile, unpredictable, and year which changed how most of us live, socialize and not to forget invest. What is your outlook for the year 2021?
A) I feel that we have learned a lot and are overcoming the health, social, and financial challenges of 2020 in a reasonably speedier way.
Like they say, "every crisis is an opportunity in disguise". The response to the Covid-19 crisis has triggered the reflation trade, accelerated the arrival of economic recovery and the much hoped for inflation by developed economies.
Many naysayers may not agree with this thought process, but the combination of growth and mild inflation coming back can prove to be a shot in the arm for the world struggling since the global financial crisis.
Effects of excess liquidity is a debatable point, but it had restricted further deterioration and has now started to work in getting back growth.
Growth solves many problems like asset quality for banks, tax collection, and debt burdens of governments, among others.
Initial mild inflation can actually aid the recovery process and may not be construed negatively for some time. The year 2020's biggest learning for all of us is to believe in ourselves and be optimistic, and it certainly pays off.
Q) The next big event which would drive the sentiment is Budget 2021 and FM has already given a teaser that it would be a vibrant one. What are your expectations from the Budget and policy measures that could cheer markets?
A) The economic, and market recovery is pretty strong and can sustain on its own. India rightfully didn't go overboard in providing fiscal stimulus, kept the powder dry, and still is experiencing the bounce back better than many countries.
Outside of budget also Govt has initiated many structural reforms like Atmanirbhar Bharat and PLI for incentivising domestic manufacturing.
Considering the Government’s constraints, we are not expecting further stimulus measures. We hope the budget focuses on continuity of reforms, stable tax regime and ease of doing business.
Government can also look at ways to lower the interest costs for itself and the industry using global liquidity and an extremely low-interest rate environment. Low cost, long term funds can be made available for infrastructure projects to further boost domestic manufacturing.
Q) Which sectors are likely to remain in focus ahead of the Budget?
A) We believe housing finance cos, real estate companies, consumer discretionary companies related to home improvement space, among others can be in focus.
It’s not only because of budget expectations but also green shoots can be seen around real estate volumes. Real estate, being the largest employment generator - directly & indirectly, can be on the focus list of Government.
In addition, manufacturing companies which help in import substitution or exports can be looked at favourably by the Government.
Q) The COVID is not over yet but vaccine news is comforting. The uncertainty is likely to linger on in the coming year as well. Which are the big risks for equity markets that investors should keep an eye on?
A) The real concern to my mind is actually the market factoring too much and too fast from the current levels too. In that case, the risk of having bigger drawdowns obviously increases later on.
However, one can look to buy into these corrections as the recovery news can keep getting stronger. In short, there can be bouts of volatility in the market and I'm not telling anything new or special here. It is one of the truths of the markets.
Q) FIIs have been generous when it comes to flows in 2020. Will the momentum continue in the coming year as well? Data suggests that FIIs have invested more than US$ 20 bn in Indian equities in CY20 while DII have sold more than US$ 3 bn led by redemptions in mutual funds.
A) The Covid-19 impact on India isn't as worrisome as we had expected initially. The recovery is also picking up strongly despite limited fiscal support from the Government.
Asset quality problems of financials too remained under control and most of them are now ready to support the economy with strong balance sheets. The currency remained very stable throughout. Reforms continued in the year which saw one of the worst health crisis.
And now earnings are expected to double from the base of FY20 in the next 4-5 years on the back of the combination of growth and inflation coming back silmultaneously.
All these and more macro factors are extremely favourable if you put them in the global macro context. Hence, India is attracting so many foreign flows.
Considering that India's weight in global indices has recently gone up, FII flows can continue to come in. The dollar index depreciation is also one of the reasons money managers are shifting money towards the emerging markets.
At the same time, MFs are facing redemptions on the back of domestic investors being jittery around the sharp rally and valuations. The returns which were looking very sub-optimal just a few months back, have started to appear somewhat decent.
After going through the pain of seeing low returns for a long period, a natural tendency can be observed to book profits and wait for better entry points.
Q) Primary markets hogged the limelight in the year 2020 with more than 16-17 mainboard issues collectively raising more than Rs 30,000 cr. What do you forsee for the year 2021, and big issue to track?
A) Given the strong markets and investor appetite, many new companies will test the market with IPOs. Big flows have gone into start-ups in the last decade from private equity investors.
Those business models are getting stabilised over the period and the private equity funds would want to exit those ventures at handsome profits. We expect many new-age businesses from the online and digital platform space coming to the markets going forward.
Q) What is your advise for investors for the year 2021? Things to keep in mind while investing/trading especially for the first-time investors?
A) The advice really would be to re-balance and maintain the asset allocation at all times and not get swayed in the direction of either excessive aggression or pessimism. Also, one needs to understand that there is also a risk in holding too much cash or fixed-income assets.
When there is massive global liquidity out there and growth starts to make a comeback, money can lose its value and asset prices can get upwardly revised.
New investors can be better off investing in good quality and growing companies or a mutual fund consisting of such companies rather than trying their luck through trading.
Q) Which sectors are likely to hog the limelight in the year 2021?
A) More or less, all sectors would benefit from the economic recovery and inflation dynamics. We prefer banking and finance (especially insurance companies), consumer discretionary companies, cement, pharma & certain chemical companies.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.