Nimish Shah of Waterfield Advisors feels as the rally is getting more broad-based, cyclical sectors are already seeing some good momentum. Sectors like IT, infrastructure, automobiles and agriculture could see traction in the run-up to the Budget 2021, he said in an interview to Moneycontrol’s Sunil Shankar Matkar.
The government has already announced a slew of medium and long-term reforms throughout the pandemic. The latest one being the much-debated farm reforms.
Some large long-term reforms are required on Land and Labour. However, with the status on farm reforms, the Government may not come in with politically sensitive reforms like on Land and Labour, said the Chief Investment Officer of Listed Investments at Waterfield Advisors who has 25 years of resourceful experience in capital markets across diverse asset classes and platforms.
Edited excerpts:-
Q: Few experts feel the Union Budget 2021 could be a historic one, especially after COVID-19 pandemic. Do you feel so? What are your expectations from the Budget and policy measures that could cheer markets?
Budget should always be a non-event. Historically, India has used the Budget to announce Reforms, Subsidies and changes on Tax Structures. Hence, the event always evokes expectations on the government’s thought process and its impact on short and long-term growth in the country. It also gives a perspective of how the government proposes to manage the economic cash flows and the resultant fiscal deficit.
The Government has already announced a slew of medium and long-term reforms throughout the pandemic. The latest one being the much-debated Farm Reforms. Some large long-term reforms are required on Land and Labour. However, with the status on Farm reforms, the Government may not come in with politically sensitive reforms like on Land and Labour.
Q) Which sectors are likely to remain in focus ahead of the Budget?
As the rally is getting more broad based, cyclical sectors are already seeing some good momentum. Sectors like IT, Infrastructure, Automobiles and Agriculture could see traction in the run-up to the Budget.
Q: The RBI in its Financial Stability Report expressed concern about high potential NPAs of the banking system which may rise above 14 percent. Some experts feel PSU banks are likely to be under strain and the well capitalized large private sector banks are strong and are likely to gain from the woes of the PSU banks. Do you feel so? What is your view on the banking sector following the Financial Stability Report?
We would want to be focused on banks that are adequately capitalized and have been able to take advantage of the low interest rates to shore up capital at attractive rates. Weaker PSU banks could face potential threat of larger NPAs in Q3 and Q4FY22.
Q: The Indian equities traded at record highs now. Should one prepare for a bigger correction in the coming weeks and what could be the quantum of correction if it happens? Should one start buying if the correction takes place or should one let the market settle?
Indian growth story remains intact and the return to pre-COVID growth rates can come in faster-than-expected. While massive foreign inflows have supported market momentum, the earnings and topline growth in Q2 and Q3 have been surprising analysts. A correction is always a good time to buy and 2021 will see gyrations in the markets and could also see some sharp dips. These should be looked as opportunities to buy and one should not miss it. Past few years have shown that market corrections reverse sharply leaving investors holding cash. Any 3-5 percent dip in markets should be bought into.
Q: What is your view on the global economy for 2021 as western world is still facing COVID-19 crisis and lockdown measures?
Various countries are showing promises of good global growth in 2021 on back of massive stimulus provided by Central Governments. Some equity markets have already factored in this growth and given handsome returns in the last one year while some markets like the UK, Germany, France and EU markets have given negative returns. Such economies and countries like China make for a good investment opportunity.
Q: What are those key risks (domestic and global) one should keep a note of them, in the year ahead? Also do you think Joe Biden’s policies will boost the US economy?
The largest risk yet is that of the second / third wave of COVID-19. While India has not been affected as of now, if the virus strikes again, the growth will get further derailed and the current expectations would surely need to be revised downwards. Key risks in India are the upcoming Budget 2021, monsoon and inflation. Globally, Joe Biden’s policy measures with respect to corporate taxes and trade negotiations with China would be important. Recovery in the Euro zone and growth in China would need to be monitored as these can impact the global growth forecast for CY21.
Q) What is your advice for investors for the year 2021? What are those key things one should keep in mind while investing/trading especially for the first-time?
While being watchful and focusing on quality, investors should not be under-invested in equity markets. A cash call can hurt portfolio returns for a few years. Staying 70-80 percent invested and investing the rest at dips, over the next 3-6 months, should be the way forward for 2021.
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