As 2020 closes, the puzzle between roaring markets and struggling economy stares us in the face. Can markets continue to hit new highs even as the economy is only slowly healing and many economies are doubting if it will return to its pre-COVID pace of gross domestic product (GDP) growth even by FY23? Neelkanth Mishra, MD and India Equity Strategist, Credit Suisse discussed the macro and the markets.
“In order to prevent more deaths and allow the economy to prepare for the pandemic, we locked down the economy. The main reason why we saw 24 percent decline in the June quarter GDP was that activities were restricted. If you remove the restrictions, the economy bounces right back,” he said in an interview with CNBC-TV18.
He foresees at least 3 percent upgrade to consensus GDP estimates by FY22. “There should be at least 3 percent upgrade to what consensus is at,” he said.
“Currently FY22 Nifty EPS consensus is more than 40 percent and FY23 is more than 21 percent. How FY23 moves is very important for us to figure out where the market goes,” he said.
“Private banks I would buy. If the economic growth is positive, the biggest beneficiary will be the financial system because the credit growth will pick up. So we have upgraded industrials to overweight now,” he said.
“The metal sector – we were overweight and we have added to it. The cash flow generation in metals is super strong,” he said.
Mishra believes 2021 could be the year for midcaps. “I do think that there will be several midcaps – which partly became midcaps because the industrial demand growth had been anaemic for five-seven years which will see good traction,” he said.
“I would also expect that many of the PLI schemes like in textiles, in medical devices will identify companies which in those sectors are champions. In the larger scheme of things they are midcaps but they are larger firms in those sectors. Those firms can see good traction. Traditionally, I am very hesitant to classifying midcaps and smallcaps as an asset class, I would rather look at subsectors and companies. However, I do think that many midcaps will benefit from the trends,” he mentioned.
For entire discussion, watch the video