‘Markets still figuring out impact of 2nd Covid wave’
The bears seem to be tightening their grip on the markets amid a sharp rise in Covid cases across the country. AD IT Y ANA RAIN, head, research institutional equities at Edelweiss Securities, tells Puneet Wadhwa in an interview that 2021 can well be more of a developed market (DM) story. Edited excerpts:
Do you think the markets are now looking beyond the second Covid wave and its impact on the economy?
The markets are in the midst of figuring out the impact of the second wave. The backdrop of the markets thinking would very much be the experiences of the US and European markets — which rebounded as the second wave started unwinding. But India’s second wave is sharper, and to that extent, the market will look harder at how the market will play through. It’s also important to keep in mind that, in hindsight, the first way was primarily about a supply squeeze — the demand impact was relatively limited. The second wave in India is different — there is not much of a supply issue, but demand can well be more of an issue, at least until the second wave fully ebbs.
How are the markets seeing the outcome of the recent Assembly polls?
The second wave and its trajectory will be more dominant and overriding drivers than the swings with the elections. That said, given the level of disruption caused by the second Covid wave, combined with the election results, the possibility of more aggressive policy action, particularly on investments for medical and infrastructure support, increases.
How’s the mood among foreign investors ?
Equities do remain a relatively favoured asset class among investors. It is helped by recent performance, but more by the quicker-thanexpected economic recoveries that most developed economies are seeing, the acceleration of vaccination and opening up of the markets that are increasingly visible, and the policy support that sustains (the US’ fiscal push is the very latest in that direction). India continues to get prominence among EMS and it is likely to stay that way, but EMS are lagging the developed world in their economic responses, and vaccination pace — and that mean 2021 could well be more of a developed markets (DM) story, than was the expectation immediately after the pandemic in 2020.
It was Reliance Industries, followed by financials that led the market rally in 2020. Is there any stock/ sector that can do so in 2021?
I do not believe one will see the kind of single stock or group dominance that one may have witnessed earlier — a higher market level and more predictable and normalised expectations usually limit such sharp trends. That said, there will be greater momentum with cyclicals — financials and industrials — as the economy starts getting back on a growth path, and against the backdrop of cheaper and more easily available money. We do see the information technology (IT) and technology spaces as a more structural tailwind that will continue to lend market leadership. Insurance businesses can be a beneficiary of their own efficiency gains, and a pandemic precipitated shift to products, as one of the leaders for the market.
Views on corporate earnings growth…
While the earnings reporting cycle is important, the market will see them as backwards-looking and weigh more on management commentaries, though they are largely seen holding steady but a little more cautious in expression.