Financial Year 2020-21 was nothing less than an era-defining one. We saw an unprecedented health crisis, but also saw indomitable human spirit surviving the same. India’s case was more challenging given the high population density & relatively poor health infrastructure ; but we can proudly say that we managed the firsts wave pretty well which shows in the incredible performance Indian equity has had. Challenging times also boosted innovations globally; many of them came in areas of Healthcare, Technology, Artificial Intelligence(AI), Education, Entertainment, Connectivity, Business, and Sports.
Financial year 2020-21 ended on a high note in terms of economic indicators such as GST collection, steel output, paints & cement production, port volumes and railway freight. These are great numbers if u compare a year before albeit on lower base.
The moot question is where do we go from here? Can the Indian economy continue to grow at this pace and momentum? Can 2021-22 bring another year of double-digit growth?
Impromptu, the heart says, Yes. India can do very well post-COVID as demand has been strong. The government is doing its bit to reignite the economy; but the path is not easy – inflation and resurgence of COVID cases being the main culprits.
Let me elaborate what can be key obstacles to growth – in India and globally. To my mind, they are,
From a global perspective, one of the big factors to keep on the radar is FII flows - with rising yield in the USA, some hedge fund carry trades can reverse & impact inflows to Emerging markets.
Second, the new USA president is moving to tax the rich and spend it on domestic infrastructure. Focus is shifting to the mainstream economy from the capital markets. Government debt in the USA has increased by $4 trillion this year; that is, $13,000 per capita. Time will soon come when USA will start compressing its balance sheet and not expand it.
After having a spectacular year for equity returns across the world, I think these are times for consolidation via time correction & crazy volatility, valuations are not too favorable either.
Going back to history over the last 40 years, after having a bumper year in returns, markets normally consolidate or correct the next year.
We believe Sectors such as Pharma and IT will continue to do well and still have meaningful upside backed by continued cost savings. Sectors where we have seen a huge jump in raw material prices such as Auto, Consumers and discretionary, which are priced to perfection can see a plunge in their earnings multiples.
We will continue to run our investment fund with a sharp eye on risk and focus on following the mandate of generating absolute returns during this financial year as well.
Stay safe !