Vaibhav Sanghavi, Co-CEO at Avendus Capital Public Markets Alternate Strategies LLP
It has been a very eventful 2021, with equity markets performing well across the globe, well supported by ample liquidity coupled with low interest rates. As we see economies recovering from the roils of Covid (once in a century pandemic) and subsequent variants, the debate has already begun on inflation, taper and rate hikes. In the bullishness of overall markets and sentiments of 2021, I want to especially highlight the great advancement of technology and its adaptation. We saw continued significant progress in Artificial intelligence, Blockchain, Metaverse etc which, has the potential to continue to transform our lives. Equally path breaking was the embracing of newer age businesses by the investors. With these newer listings, capital markets and economy has embarked on an exciting phase of growth, innovation and entrepreneurship. New age has dawned upon us, with evolving business models and the way we look at them. Before we entail on this more, let me highlight my view on important variables on both global and domestic economy.
Global
Widely debated topic of discussion has been the course of inflation. Whether is it sticky or is it transitory due to temporary disruption in supply chains and demand spikes post Covid. It is one of the important variables to know for understanding future course of tapering and potential interest rate hikes. Global rally in various asset classes have been aided well till now by the easy liquidity available at virtual zero interest rates. If we start to see a tightening environment, the narrative from market perspective will likely shift towards better economic growth and robust earnings, which was illusive till now.
Fed actions will be watched very closely and I hope we don’t see a policy misstep there. China would be another important economy to watch closely to determine the effect on supply chains due to their policies. We saw regulatory direction shifting towards environment, income equality and to an extent moral policing on tech companies, which from a long term perspective may be the right path, but has the potential to create shorter term pain. We will wait and see further on these once winter Olympics are done. To sum it up from global perspective, if the economic growth sustains, we may enter a cycle of tightening which has the potential for the valuations to come off. Else, we get justification to continue with loose monetary policies.
Domestic
India among other emerging market economies look one of best placed. Robust economic recovery, with controlled inflation and stable currency resembles a goldilocks scenario. Proactive reforms on supply side from Government along with adequate and timely support by RBI has helped our economy to post very good recovery. I expect growth to remain buoyant, translating to robust earnings growth. Our markets would stand to get affected by the overall risk environment globally, which can cap overall valuations. Thus from domestic front, earnings growth will likely be the focus, but not the P/E (price-to-earnings, accompanied by higher volatility.
New Age Dawns
There are two big path breaking long term trends that markets have witnessed in 2021. First is, rapid progress of technology-driven companies and second, global focus on climate and related progress. 2021 has been a momentous year, which would clearly be identified in history as a year of listing of newer age businesses on the bourses. The disruption done by tech companies in their respective fields viz food tech, ed tech, fin tech etc. are redefining the customer experience, winning their loyalty and leading to rapid increase in their market share.
Their investments into technology and ecosystem driven approach, are likely to capture large part of the revenue pool, leading to long term profitability. As these companies progress, markets will evolve and adjust to newer and never seen before valuations benchmarks. The next decade will catapult these companies to leaders with a potential to be a large part of benchmark indices.
While technology-led companies has visibly seen tremendous progress, as a globe, there has been serious resolve to address the climate change problem. In this, governments with their policies and companies with their entrepreneurship have embarked to provide solutions converting into exciting business opportunities. We have come across lot of progress in renewables, electric vehicle (EV), pollution control equipments etc. In my view, this is a strong long term trend where we will continue to see exciting opportunities. Both these segments will define our ways of lives going ahead and thereby our investments as well.
We are in enterprising times, with opportunities galore. Its upon us to smell the coffee.
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