As we step into the new year 2021, its a time to review 2020 and present our investment outlook and strategy for 2021.

2. “There are more questions than answers
Pictures in my mind that will not show
There are more questions than answers
And the more I find out the less I know
Yeah, the more I find out the less I know”
--Johnny Nash
(From 1972 Album “I Can See Clearly Now”)
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3. Key message
• 2021 will be a year when hopes and reality come face to face
• Investors will be faced with more questions and get only a few answers
• Normalization process may be slow and protracted over many years
• Redundancy may be the most prominent “R” word
• Digital and Disintermediation may gather substantial pace
• Shape of New World Order may continue to be hazy
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4. 2021: Key Questions
• How will Brexit impact the Europe?
• What would be the impact of a prolonged Sino-US cold war?
• What will be the end game for the profligate monetary and fiscal policies adopted by
most states?
• How the normalcy will be restored in global monetary system?
• Will the supremacy of USD over global monetary system be finally challenged?
• Will neutral currencies become universally acceptable, or we will have cold war like
trade blocks with their own respective dominating currency (for example, USD & EUR
for one block; CNY for another block; and gold for the non-aligned)?
• Will the international borders, closed to check the pandemic, ever open fully?
• How many of the present businesses and industries will become redundant in post
Covid-19 era?
• How will the global digital divide be bridged?
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5. Investments - Outlook
2021: India
• Macro weakness to persist. Long term GDP growth to stay below 5%.
• 3/4th population may continue to face stagflation – low to negative wage growth & rising cost of
living
• Market volatility to rise in first half of the year; second half might be a slow grind down
• Overall equities to give below par return
• Next RBI move may be a hike; though 1H2020 may not see any change.
• Liquidity conditions to remain comfortable for most part of the year
• Real assets may continue to remain in favor (Real Estate, Gold, Agri commodities)
• Fiscal leverage may be a necessary evil
2021: World
• Growth to remain below par; recovery may be slower than presently estimated
• Volatility to increase
• Monetary policy my be tentative and keep markets anxious
• Emerging economies may be in favor due to USD weakness.
• Industrial metals and oil to come under pressure on growth faltering
• Digital currencies to gain more prominence in global monetary system 5

6. Investments – Strategy
• The liquidity fueled rally in financial assets may tire out. The gains in 2021 could be less,
volatile and erratic.
• Recovery in Indian economy may be completed by 3Q2021, as the base effect wanes.
Overall growth may not be broad based and may be driven by fiscal spending and
incentives.
• Overall equity returns to remain poor. Current low yields on long to sustain; short bond
yields may increase. INR to remain stable. Real estate prices may continue to recover.
• Corporate earnings to grow in high teens. Nifty returns may be + 5% for the year. Equity risk
reward clearly negative.
Strategy: Focused portfolios; market cap agnostic; active trading to take advantage of volatility
Asset allocation: Underweight Equity (40% allocation) & Debt (20%). 30% allocation to active
trading in equities. 10% to cash or Gold or Bitcoin as per investment availability.
Equities: Prefer IT, Insurance, Healthcare, Agri input and large Realty. Underweight on lenders
Debt: 75% accrual; 25% ultra short duration. Duration allocation to increase to 100% if
benchmark yields rise above 6.5%. Ultra Short Term allocation to end if overnight yields rise
above 5% and curve flattens.
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7. 2021: Macro Outlook
• Growth: Real GDP growth rate may average 11-13% in 2021, as benefits of low base,
government incentives, and policy reforms kick in.
• Inflation: CPI to average around 5%, with some seasonal spikes. Core inflation to
weaken as raw material prices ease and wage correction gets over
• Interest Rates: Expect benchmark yields to average below 6%.
• Exchange rate: USDINR may average 74, and move in 73-79 range.
• Fiscal deficit: FRBM targets may be relaxed and fiscal deficit may exceed 4%.
• Current account: CAD to average in 1.5-2% of GDP range in 2021.
• Investment: No material rise in investment. Both public and private capex to remain
poor, though marginal improvements may be seen due to low base.
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8. 2021: Trends to watch
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• Sustainable acceleration in Growth
• Reversal in domestic savings rate
• Export growth
• Trends in NPA
• Private and Public Investment Demand
• Real rates turning positive
• Tax collection
• System liquidity

9. 2021: Growth Outlook
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10. 2021: Growth Outlook
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Consensus estimate suggest FY22 GDP to be lower than FY20

11. 2021: Growth Outlook
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RBI’s next move could be a “hike”

12. 2021: Growth Outlook
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Mortgage growth may pick up; positive for real estate

13. 2021: Growth Outlook
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External position to remain comfortable

14. 2021: Growth Outlook
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…though rising public debt could be a worry

15. 2021: Growth Outlook
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…especially if revenue fails to pick up

16. 2021: Growth Outlook
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Inflation elevated, but may not spike in 2021

17. 2021: Growth Outlook
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Decline in domestic savings may continue

18. 2021: Growth Outlook
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Global growth: Feeble recovery in 2021; slow in 2022

19. 2021: Financial Market Outlook
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India markets
• The financial market may witness higher volatility.
• The returns from Indian equity benchmark may be in the range of + 5%.
• Investment and discretionary consumption demand should remain subdued. Fiscal
profligacy may provide short term support. Select sectors may see fiscal incentive
driven investment.
• Global commodities to remain under pressure. Industrial metals and energy prices shall
remain under pressure. Agri produce prices may remain firm.
• Merchandise exporters to continue underperforming; services may do well.
• Benchmark bond yields may average below 6%. Short term yields may rise
• Real estate prices may gain further on low rates and incentives.
• INR to remain stable, may average in 74/USD for the year.

20. 2021: Equity Market Outlook
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India Equities
• Earnings: FY22 earnings growth may be in high teens on low base.
• Technical: Nifty may move in a very large range in 2021 also. On the
downside, it may trade in 9365-10150 range. On the upside, in the range
of 14200-700. The risk reward therefore is clearly negative at present.
• Flows: Expect flows to remain erratic, despite weaker USD and
preference for EM.

21. 2021: Earnings Outlook
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22. 2021: Earnings Outlook
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Markets may be already pricing in full recovery in earnings

23. 2021: Earnings Outlook
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Present Earning estimates may be optimistic, as usual

24. 2021: Equity Market Outlook
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25. 2021: Equity Market Outlook
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26. 2021: Nifty Outlook
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Nifty may end 2021 with some losses

27. 2021: Investment Strategy
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(a) Flexibility in portfolio, with 30% allocation to tactical trading in equities.
(b) Overweight on IT, Insurance, Healthcare, Agri input and large Realty.
(c) Underweight on lenders and consumer finance names.
(d) A relatively stable INR (Average around INR74/USD) and slightly higher short term rates
assumed in investment decisions.
Any change in these assumptions may lead to change in strategy midway.

28. 2021: Investment Strategy
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29. 2021: Key risks
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What will change market outlook and investment strategy
• Relapse of pandemic due to virus mutation or inadequacy of vaccine, leading to a fresh
round of mobility restrictions.
• Worsening of Sino-US trade relations leading to cold war like conditions.
• Material tightening in trade, technology, and/or climate regulations in India and globally.
• Hike in effective taxation rate to augment revenue.
• Material escalation on northern borders.
• Prolonged civil unrest.
• Stagflation engulfing the entire economy, as inflation stays elevated and growth fails to
meet the expectations.
• More exits from EU.
• One or more Indian states failing to honor its debt.
• Material rise in bank NPAs after forbearance ends.

30. 2020 in retrospect
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If the 2020th year of Christ could be described as –
“Totally Forgettable and Remarkably Transforming".
Like 2019, the year 2020 also started with great hopes, but soon turned into a
nightmare with outbreak of worst pandemic in over 100yrs. Hopes were raised
again with news of victory over deadly virus with successful development of
vaccine. Swinging between the hope and despair many transforming changes
have occurred to the ways we live, work, travel, shop and conduct our business.

31. 2020 in retrospect
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Indian equity markets in 2020
 Though benchmark indices indicate that mid and small cap indices have done materially
better than the benchmark Nifty; the market breadth has not been encouraging.
 Market breadth was positive only for 5months, while in seven months market breadth was
negative.
 Indian equities were average performers, in comparison to the global peers.
 Net institutional flows were very low at Rs25k crores.
 FPIs invested net Rs58k cr, but most of this money came through swtich from debt.
 Long term Nifty return (5yr CAGR) was 12%, similar to 2016, 2017 and 2018.
 Nifty averaged around 11030 and moved in large 7500-14000 range
 Markets saw sharp rise in speculative trading with delivery percentages falling sharply.
 Nifty earnings growth remained anemic at 7%.

32. 2020 in retrospect
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Earnings continue to disappoint

33. 2020 in retrospect
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Broader Markets underperform for most of the year
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1.8
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Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Market breadth mostly negative in 2020
NSE Advance/Decline Ratio

34. 2020 in retrospect
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Future Groups leads the losers in 2020

35. 2020 in retrospect
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Broader Markets outperformed; IT & Pharma lead; PSU worst performers

36. 2020 in retrospect
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Institutional flows erratic, marginal net buying

37. 2020 in retrospect
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NSE Trading Internals – Speculative activity rises

38. 2020 in retrospect
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Markets rallied non stop after March panic

39. 2020 in retrospect
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Gold Funds were best performers

40. 2020 in retrospect
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41. 2020 in retrospect
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Markets deluged by excess liquidity

42. 2020 in retrospect
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Yield curve steepened sharply

43. 2020 in retrospect
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External Debt increased

44. 2020 in retrospect
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Consumer Confidence improves slightly after collapse

45. 2020 in retrospect
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Business sentiment recovering well

46. 2020 in retrospect
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Central Banks kept the markets well supplied

47. 2020 in retrospect
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…taking the bond yields deeper into negative territory

48. 48
USD remained under pressure
2020 in retrospect

49. 49
2020 in retrospect
Commodities recovered from Covid shock, but no sign of inflationary pressures

50. 50
2020 in retrospect
Bitcoin gained more acceptance, beats all asset classes

51. 51
2020 in retrospect
Average USD investor underperforms most asset classes

52. 52
2020 in retrospect
Equities expensive relative to earnings; but cheap relative to bonds

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