We started 2020 on a buoyant mood with all good things picking up for the economy by the end of 2019, well elaborated in our article, ”The last day is special, it ends significant confusion.” published on 31stDecember 2019.
Indian government brought in an expansionary budget which was well supported by RBI’s policy rate cuts. Not only various engines of growth of the economy started showings signs of revival, stock market rally also spread to wider range of stocks including from midcap and small cap segments, from just being a concentrated rally limited to 12-15 stocks.
It was also the time when corona had engulfed the key industrial town of China and its spread started dreading the world. Remember our communication of 16thFebruary in which we feared it to be a Black Swan event. And in our communication Adversity offers Opportunity on 24th February we had advised you to keenly look for investment opportunities that this pandemic could offer.
Opportunities started pouring in soon. And we in our communication of 1st and 15thMarch we drew your attention to such opportunities and advised you to start increasing exposure to equities. In fact in our communication of 26thMarch we went to the extent of advising you to When it rains Gold, put out the bucket not the thimble.
In our communication of 3rd May we maintained that the equity is attractively valued but may take 6-9 months when one would see how our economy is shaping up. On July 3rd, in our communication On Cross Road we talked of Indian’s ability to adapt quickly to changing environment and said that – Every cloud has a silver lining. And we discussed in detail the Chinese aggression, US election, covid situation and how they will become non-event very soon.
We turned cautious in August on markets rallying very fast and its being a concentrated one, restricted to few stocks. In the same communication of 22ndAugust on Markets riding high – what to do, we also maintained that this rally may continue till US elections or to even new year. We were also keen to see how spending takes place by Indians during the festival seasons and revival of the economy.
What 2021 behold for us:- From economy point of view – manufacturing & services PMI are well above 50, unemployment is on decline, farm output has been good, capacity utilization is increasing, rising tax collection and super sales figures by e-commerce websites during festival season, indicate that economy is reviving. And we believe by the end of this fiscal year, covid situation will be much under control.
From markets points of view – there are mixed signals. While market cap to GDP ratio is 77 which says it is fairly valued and still have an upside, its PE ratios at 32+ indicates that markets are highly overpriced. We believe in another two quarters, earnings will catch up and bring down the P/E ratio. In the short run markets could correct a bit to bring down the PE ratio.
What we strongly believe that unless something extraordinary detrimental happens to Indian economy, next 3-4 years may turn out to be golden years of Indian economy and stock market’s Bull Run.
What should an investor do – As usual this is a time to rebalance your portfolio and make strategies for the next year. Those who invested in March-July this year should look at booking profits and rebalance their portfolio. For long term investments – stay cautious and stagger your investments over 3-5 months while keeping a constant watch on markets for entering equity in a big way.
Your InvestmentMitra wish you a very Happy & Wealthy Year 2021. Stay safe and stay healthy.
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