By: Nikhil Kamath
As the rollercoaster of a year – 2020 – comes to an finish, we see ourselves at the peak of a bull industry which no one could have observed coming specially throughout the March lows. This sheer unpredictability of the capital markets tends to make it challenging for one particular to predict what lies ahead but subtle cues for sectors/themes that are poised to excel are there to be observed.
Coming into 2020, rational investors believed that the markets had been overvalued and in contrast to the preceding industry crashes i.e GFC and dot com bubble burst which are examples of industry failures, the 2020 crash was brought on due to a international pandemic which incredibly just place, paused the international financial engine.
Once the effects of the pandemic had been normalised, companies with higher capital reserves have been capable to return to normalcy a lot quicker than other people but everybody barring a couple of sectors are on the path to recovery. Some sectors like aviation, hospitality continue to see discomfort via no fault of their personal but sectors like true estate, agriculture which had been otherwise dormant segments of the economy are displaying indicators of resurrection. This structural shift in the financial engine will give investors new avenues to invest.
Looking ahead, low-interest prices which propagate liquidity and higher inflation will continue to force dollars into capital markets. FII inflows, which hit an all-time higher in November, will continue to pour into the markets due to the weakness in the dollar as observed in the dollar-price index.
At the ground level, customer-facing sectors, specially discretionary goods and services will continue to be subdued as buyers concentrate on shoring up their disposable revenue due to the uncertainty about the brief-term impact of COVID and the vaccine. Policymakers have focused on supplying funding to targeted sectors which have the capability to spur demand for goods and employment across various sectors.
I consider the coming year will be significantly less volatile than the final. The pandemic brought with it unbelievable amounts of uncertainty about which sectors will reside via the financial downturn. Markets frequently overestimate a difficulty, to start with, and course-appropriate with a vengeance.
I think the Indian Economy possesses immense amounts of development possible and at the existing juncture, getting worth in sectors/providers is what one particular will have to concentrate on. It will be prudent at this juncture to concentrate on inherent fundamentals and ignore most of the noise.
(Nikhil Kamath is the Co-founder and CIO, True Beacon and Zerodha. The views expressed by the author are his personal. Please seek advice from your investment advisor just before investing.)