$23 BILLION FII inflows in Indian equities in 2020

demic has forced companies to think differently and quickly by reducing costs/debt, cleaning up balance sheets and redrawing business models from scratch.

However, analysts sounds a note of caution saying multiples of mid-cap stocks are way higher than that of largecaps. “Valuations here make us uncomfortable. We are optimistic about FII flows as they prefer large-caps. We will allocate no more than 10 per cent of our investors' portfolio into this segment.” The small-caps, he explains, is a large basket and should give a return of 20-30 per cent next year. “Investors could look at allocating about 20 per cent of their portfolio into this segment. Large-caps would be more resilient to a future correction and, hence, a safer bet,” says Oza.

Covid-19 pushed the narrative in favour of defensive plays cyclicals, the focus is on select large banks, capital goods, oil and gas, cement and metals. This should be done with an accumulation strategy as most of these economy-driven sectors are prone to market corrections. Within defensives, FMCG companies could also deliver better returns due to the sector’s underperformance in 2020.” Besides, consumption has made a strong comeback due to healthy demand in rural areas where above normal monsoon and higher crop sowing have helped farmers retain their income levels.

But a Nomura report says investors should watch out for consumption slowdown and weak demand in urban areas due to the government’s limited focus and shut offices, schools and colleges. “Consumption growth had been slowing down even before the pandemic struck in late March 2020. The propensity to spend has been declining as witnessed in higher household savings in FY20. The consumption expenditure may be further impacted due to loss of household incomes. The formal sector with salaried class is relatively less impacted. However, wage growth in the formal sector has been low.”

All hopes are pinned on the vaccine. Most stock markets around the world have priced it in on the assumption that it will take away the fear of the virus and trigger economic recovery. But a JP Morgan December report points out that a vaccine may not be a ‘silver bullet’ in 2021. “We are focusing on investments that can work with or without an effective vaccine. These include companies linked to digital transformation, healthcare innovation and household consumption,” it says.

One sector that remained tepid in 2020 but looks like it’s ready to soar is real estate. If high debt, inventory pile-up and economic slowdown weighed on realty stocks in 2020, reduced home loan interest rates (sub-7 per cent), lower stamp duty in several states, extension of credit guarantee schemes, among others, are promising to give it new wings. Housing sales in October-December rose to 50,900 units across seven big cities from 29,520 units in the previous quarter. “If real estate were to grow, it would give a boost to the entire economy. We can get into a twothree year cycle where it can give 15-20 per cent returns from the current low base. With interest rates being low, people have more reason to buy a home than not to buy

Sectoral Outlook