Outlook on Equity & Sectors

On back of continued improvement in mobility and sharp increase in Covid-19 vaccination rate with almost 47% of adult population having taken one dose as at end of September 2021 (36.4% end of August) and 17.2% of population vaccinated with two doses (10.8% end of August end) economic activity has maintained its momentum.

During the last 15 months, Equity markets have witnessed quite a comeback and valuations (basis historic earnings) for the leading indices “optically” seem to be at 30% premium to long- term averages. However, once we adjust the earnings for a normalized 12-month forward earnings and also adjust for the lower cost of capital, valuations are either in-line with long-term averages or at a mild premium. The primary markets, on the other hand, continue to be vibrant as many new-age businesses get listed, offering investors an opportunity to participate in their growth journey. The investors, however, need to exercise caution in valuing these fast growing but cash-guzzling businesses. We believe that risk-reward in the markets are evenly balanced at this stage and the Indian economy should witness a recovery in 2021. The potential 3rd wave may slow down the activity levels, but a high vaccination rate of the population makes us believe that hospitalizations will remain low (as is seen in some of the countries where 3rd wave is underway and where vaccination rates are high). The damage to economic activity, hence, should remain limited and recovery could be stronger than hat is being anticipated right now.

Outlook on Sectors