Weekly market review by Hemant Kanawala, Head - Equity, Kotak Mahindra Life Insurance Co. Ltd.

“Covid situation in India continues to improve with active cases at 3,15,000 and new confirmed cases below 20,000. Although the current covid situation in US and Europe remains worrisome, the start of vaccination program gives hope of situation normalizing fast. UK has commercially started to vaccinate the vulnerable population with Pfizer vaccine developed jointly with BioNTech. In India too, three firms have applied for emergency use of vaccine viz- Pfizer, Serum Institute of India, and Bharat Biotech. The government plans to vaccinate at least 300 million people by August 2021.

The current Covid situation gives the government room to open the economy further. Most of the economic indicators show improvement with IIP growth of 3.6% in Oct 20, manufacturing sector PMI in the expansionary zone at 56.3 in Nov 20 and sustained traction in the consumption demand. Three factors contributing to the growth are normalization of the lockdown impact, multiplier impact of the stimulus and recovery in global trade. From the current commentary of most central bankers, accommodative policy is likely to continue till they observe stability in economic growth and employment.

FII has invested $ 14 bn since November and $ 21 bn in CY2020. India has received much larger flows as many other emerging markets like Taiwan, South Korea and Thailand have seen large outflows in CY2020. As the US dollar is expected to remain weak, FII flows in emerging markets and India are expected to remain strong.

As most of the parameters are looking favorable, investors must pay attention to valuation. Nifty is trading at P/B of 3.9, which is close to all time high since 2009. What it means that, there is limited upside from valuation rerating and a lot of positive scenario is priced in. Consensus is estimating high double digit growth in earnings in FY22 and FY23. Corporate earnings to be announced in January will give some indication if this is achievable. It may be advisable to add equities on correction to improve risk return equation.”