InvestorQ : What is the Investment outlook & strategy for 2021?
Gauravi Patel made post

What is the Investment outlook & strategy for 2021?

5 months ago
2021 will be a year when hopes and reality come face to face.

Key Messages:
• Investors will be faced with more questions and get only a few answers
• Normalization process may be slow and protracted over many years 
• Redundancy may be the most prominent “R” word 
• Digital and Disintermediation may gather substantial pace 
• Shape of New World Order may continue to be hazy

Investments - Outlook 2021: India 

• Macro weakness to persist. Long term GDP growth to stay below 5%. 
• 3/4th population may continue to face stagflation – low to negative wage growth & rising cost of living 
• Market volatility to rise in the first half of the year; the second half might be a slow grind down 
• Overall equities to give below-par return • Next RBI move may be a hike; though 1H2020 may not see any change. 
• Liquidity conditions to remain comfortable for the most part of the year 
• Real assets may continue to remain in favor (Real Estate, Gold, Agri commodities) 
• Fiscal leverage may be a necessary evil 2021: World 
• Growth to remain below par; recovery may be slower than presently estimated 
• Volatility to increase • Monetary policy my be tentative and keep markets anxious 
• Emerging economies may be in favor due to USD weakness. 
• Industrial metals and oil to come under pressure on growth faltering 
• Digital currencies to gain more prominence in the global monetary system

Investments – Strategy 

• The liquidity fueled a rally in financial assets may tire out. The gains in 2021 could be less, volatile and erratic. 
• Recovery in the Indian economy may be completed by 3Q2021, as the base effect wanes. Overall growth may not be broad-based and may be driven by fiscal spending and incentives. 
• Overall equity returns to remain poor. Current low yields on long to sustain; short bond yields may increase. INR to remain stable. Real estate prices may continue to recover. 
• Corporate earnings to grow in high teens. Nifty returns may be + 5% for the year. 
• Equity risk-reward is clearly negative. Strategy: Focused portfolios; market cap agnostic; active trading to take advantage of volatility Asset allocation: Underweight Equity (40% allocation) & Debt (20%). 30% allocation to active trading inequities. 10% to cash or Gold or Bitcoin as per investment availability. 

Equities: Prefer IT, Insurance, Healthcare, Agri input, and large Realty. 
Underweight on lenders Debt: 75% accrual; 25% ultra short duration. Duration allocation to increase to 100% if benchmark yields rise above 6.5%. 
Ultra Short Term allocation to end if overnight yields rise above 5% and the curve flattens.

Macro Outlook 

• Growth: Real GDP growth rate may average 11-13% in 2021, as benefits of a low base, government incentives, and policy reforms kick in. 
• Inflation: CPI to average around 5%, with some seasonal spikes. Core inflation to weaken as raw material prices ease and wage correction gets over 
• Interest Rates: Expect benchmark yields to average below 6%. • Exchange rate: USDINR may average 74, and move in 73-79 range. 
• Fiscal deficit: FRBM targets may be relaxed and fiscal deficit may exceed 4%. 
• Current account: CAD to average in 1.5-2% of GDP range in 2021. 
• Investment: No material rise in investment. Both public and private CAPEX to remain poor, though marginal improvements may be seen due to low base.

Financial Market Outlook: Indian markets

• The financial market may witness higher volatility. 
• The returns from the Indian equity benchmark may be in the range of + 5%. 
• Investment and discretionary consumption demand should remain subdued. Fiscal profligacy may provide short term support. Select sectors may see fiscal incentive-driven investment. 
• Global commodities to remain under pressure. Industrial metals and energy prices shall remain under pressure. Agri produce prices may remain firm. 
• Merchandise exporters to continue underperforming; services may do well. 
• Benchmark bond yields may average below 6%. Short term yields may rise 
• Real estate prices may gain further on low rates and incentives. 
• INR to remain stable may average in 74/USD for the year.

Equity Market Outlook: India Equities 

• Earnings: FY22 earnings growth may be in the high teens on a low base. 
• Technical: Nifty may move in a very large range in 2021 also. On the downside, it may trade in the 9365-10150 range. On the upside, in the range of 14200-700. The risk-reward, therefore, is clearly negative at present. 
• Flows: Expect flows to remain erratic, despite weaker USD and preference for EM.

Noor answered.
5 months ago

We expect that the global economy should grow by 4.1% in 2021 as demand continues to recover following the recession in 2020. With policy rates set to remain at or below zero in all major developed economies, equity markets should continue to provide attractive returns.