The themes of 2020 were digitisation and healthcare. In the years before that, the themes of financialization or consolidation in industry decided the winners and losers on Dalal Street.
So, what can be the dominant theme for the next calendar? Analysts who took part in this year’s ETMarkets New Year Survey picked themes that were as varied as their investment styles.
“As we go into CY21 with a few Covid vaccines coming into the market, it will be ideal to play the recovery theme for next year. In this scenario, cyclical sectors and stocks could score over defensives in CY21. Within defensives, select consumer staples or FMCG companies may deliver better returns due to the sector’s under-performance in CY20.
In cyclicals, one needs to focus on select large banks, capital goods, oil & gas, cement, utilities and metals and mining,” said Rusmik Oza, EVP and Head of Fundamental Research at Kotak Securities.
Deepak Jasani, Head of Retail Research, HDFC Securities, said 2021 may belong to cyclical stocks and smallcaps & midcaps. Within cyclicals, metals, oil & gas and financials stand out, he said.
September quarter earnings for almost all sectors, barring the hardest Covid-hit airlines and auto, surprised Dalal Street. Nifty companies recorded higher ever profit for the quarter and margins were also at a high. Most analysts believe this could continue in the next few quarters with recovery on the cards, but some sectors may perform better than the others.
Oza estimates high earnings growth for the cyclical or economy-driven sectors in FY22: banks (29 per cent); capital goods (74 per cent); oil & gas (21 per cent); cement (31 per cent); utilities (17 per cent) and metals & mining (26 per cent).
Naveen Kulkarni, Chief Investment Officer, Axis Securities, says the biggest theme for next year will be the return of household spending in real estate, which should lead to a significant uptick in the economy.
Nirali Shah, Senior Research Analyst, Samco Securities, is another advocate of the sector and believes 2021 could be the year for the real estate sector. With stamp duties being cut, RERA in place and inflation on the rise, real estate stocks could witness a good bounce.
Real estate as an asset class has been out of favour for a while now, a trend which even the government and RBI want to change. Though the tides of change are visible now with the Nifty Realty Index almost doubling from March lows. However, commercial real estate has been going strong as always.
“The kind of interests shown by many PE funds in acquiring lease rental businesses gives a lot of confidence that shares of NESCO, with a rich surplus land bank in Mumbai, can play out in a big way in 2021,” said G Chokkalingam, Founder of Equinomics, a PMS firm.
Some analysts doubled down on the ongoing dominant theme of healthcare and digitization, as they see more cloud adoption by businesses with no end in sight for the Covid pandemic.
“Digitization and healthcare are likely to be the beneficiaries of the pandemic, which is expected to expand in the future. IT, pharma and chemicals are expected to be the biggest beneficiaries. Cyclicals and interest rate-sensitive sectors like metals, banks and auto can also benefit in 2021, if the economy continues to revamp,” said Vinod Nair, Head of Research at Geojit Financial Services.
Another beneficiary of the pandemic is telecom and the prospects of the sector hugely enthuse Ajit Mishra, VP Research at Religare Broking. His favourite from this sector is Bharti Airtel.
“Our thematic bet would be telecom, as we believe the worst is over for the sector. Concerns over tariff war and the decision on AGR dues have subsided now. The long-term growth story remains promising for the industry, led by an increase in digital penetration, which has further accelerated post the pandemic and consistent rise in smartphone users,” he said.
The chemicals space has generated a lot of interest in recent years, and some analysts are hooked to it, suggesting to bank upon the sector in hopes of growth, especially in exports. At the same time, increased level of financialization has drawn some fans.
“In specialty chemicals, we expect demand to remain strong and companies should benefit from enhancement in product portfolio and capacity expansion. Life insurance and AMC are structural growth stories in India and should benefit from increasing penetration,” said AK Prabhakar, Head of Research at IDBI Capital.
Among others, Gaurav Garg, Head of Research, CapitalVia Global Research, is betting on specialty chemicals and metals, while Gaurav Dua, SVP, Head – Capital Market Strategy & Investments at Sharekhan, has zeroed on NBFC as his preferred investment theme for 2021 where he sees substantial scope for re-rating given the easy liquidity conditions.
Vinit Bolinjkar, Head of Research, Ventura Securities, is bullish on technology companies, including IT/ITeS and online/app-based businesses, as companies have increased their focus on cost takeout programs by investing more on IT infrastructures.