By Puneet Sikka
To kick off 2021, we turned to some of our most popular contributors for insight into where they see markets heading in the coming year. In this part 1 of our three-part series, two contributors weigh in on where they think how some sectors will perform next year.
Sandeep Singh Ahluwalia – Sectors to Focus in 2021: Real Estate, FMCG, Pharma and Chemicals
In 2020 the Indian stock market (Nifty 50) played an exceptional cat-and-mouse game with the investing community as the frontline indices made new lows, after which they turned around in an unprecedented manner. Nevertheless, I expect this extreme level of volatility to continue in 2021. This is as even though there are vaccines available, we are seeing new strains of COVID-19 developing that are threatening the path to normalcy whilst also raising tough questions about the viability of the present treatment regimen. Nonetheless, as evident in all market conditions, there will be certain sectors that will do extremely well whilst, there will be certain sectors that will go to the dogs.
The three sectors to watch for buying opportunities:
Real Estate: The Indian real estate sector (Nifty Realty) has been under pressure for the better part of the last decade. This in turn has resulted in massive wealth erosion, which I believe is coming to an end. I say this as interest rates for home loans have reduced to roughly 7% from a prior value of 9%. Thus, many first-time buyers who were sitting on the fence will now be motivated to enter the housing market. Moreover, many individuals have migrated away from tier-one cities, which has raised the level of disposable income available to them. Thus, due to this, I expect a lot of this extra income to enter the real estate sector. Furthermore, properties prices across the country have had a downwards shift as the coronavirus pandemic has left many builders with a sizable level of unsold inventory. Thus, a mix of all these factors makes the real estate sector an excellent pick for 2021. However, I would suggest you focus on stocks that have more properties in tier two or tier three cities, as I presume this is where the main growth shall lie.
FMCG sector: The FMCG sector (Nifty FMCG) has had to modernize in 2020 like never seen before, as that was the only way for them to put the worst behind. However, I believe 2021 brings a glimmer of hope for the sector as there is a significant uptick in rural and urban demand across the country. Moreover, the sector has excellently realigned its portfolio to satisfy the prerequisites of the new normal. This in turn will help them refocus their efforts on key growth drivers.
However, I would suggest you concentrate on names that are trading at more reasonable valuations, as they have a better growth trajectory in terms of price. This is as an investor what matters is what percentage the stock price can rise by in a year and not any other trivial item like which index the stock is trading in. A good name I believe many ought to consider is Bajaj Consumer, as I expect this equity to do well not only in 2021 but in the years to come.
Pharma and Chemicals: The Pharma sector (Nifty Pharma) has been the best the performing sector of 2020 as it has risen by roughly 55% against an average of 13% seen across other indices. Nevertheless, I believe this sector has a lot more to give as I expect it to repeat its 2020 blockbuster performance, and this is primarily due to improved revenue growth thanks to COVID-19. Moreover, most of the household Pharma stocks undertook cost control measures in 2020, which will further boost profitability. Coming to stock selection criteria for the sector. I would suggest you focus on names that have a higher level of sales in India coupled with a clean FDA status. This is as a lower level of dependence on foreign sales will be a key factor most institutional investors will be looking at as the potential of growth in the Indian market is very high. Whilst, the clean FDA status will simply be an icing on the cake.
Swati Shrivastava – Pharma Stocks Expected to Show Fluctuations in 2021
The year 2020 witnessed sudden market fluctuations due to the well-known COVID-19 pandemic. The pharmaceutical sector was no exception to the hard hits of the pandemic. Pharma segment stocks exhibited the fastest recovery given that the industry was rightly included under the essential services and operations continued. Stocks of top 5 pharma majors- Sun Pharma (NS:SUN), Aurobindo Pharma (NS:ARBN), Dr Reddy’s Laboratories Ltd (NS:REDY), Cipla (NS:CIPL) and Lupin (NS:LUPN) were back to their pre-Covid levels in April, i.e. within a fortnight of the announcement of nationwide lockdown. These stocks are currently trading at ~40-80% high of their pre-Covid values. Further, COVID-19 related stocking up boosted sales. Given that COVID-19 currently associates with strong market sentiments, an amalgamation of related factors would play a crucial role in determining stock prices in the pharma sector in 2021. With India having one of the highest COVID-19 recovery rates in the world at 95.46%, companies are consistent on banking upon Remdesvir, Favipiravir and Hydroxychloroquine even as medical experts and the scientific community remain divided over their effectiveness
ZydusCadila could be a strong player of COVID-19 space. ZydusCadila stock showed a minor dip of 5% post lockdown announcement and was back to pre Covid levels within a week. The stock is currently trading ~75% up from its pre- Covid value. The fact that the company is developing offerings in prevention as well as treatment space makes it a suitable candidate for the watch list. In disease prevention space, the company is developing ZyCoV-D, India's first DNA plasmid vaccine which has recently completed Phase 2 studies and in disease treatment space, Zydus has recently received approvals on Phase 3 clinical trial with its biological therapy, Pegylated Interferon alpha-2b, ‘PegiHepTM. Additionally, Zydus offers Remdesvir and Hydroxychloroquine.
Pharma major Cipla, also trading at ~75% high than its pre-Covid levels, can also be a stock to hold as the company has diversified itself when it comes to COVID-19 portfolio. The offerings show that the company is in an effort to provide end to end solutions for the patients. Cipla has been building its COVID-19 portfolio on the forefront of the pandemic and is launching products aligned with the market cycle. With indigenous offerings ranging from Covid detection kits, antibody detection tests, treatment options as Hydroxychloroquine, Remdesvir and Favipiravir, Cipla is also partnered with Roche for tocilizumab. Cipla additionally offered hand sanitization products. The company is open for vaccine marketing collaborations given its large drug distribution network
However, stocks of Glenmark, banking COVID-19 opportunities solely upon Favipiravir, can be expected to witness fluctuations. Further, Glenmark India’s Q2FY21 sales were highly dependent on Fabiflu (Favipiravir) which was the third-largest contributor to its overall sales, giving the firm’s India business a growth of 25.6% compared to IPM growth of 6.2% -- a big factor to consider
While vaccines are being considered as the ultimate resort for COVID-19 prevention and their availability is eagerly awaited, patient perception towards vaccines is equally important. Companies have proposed data with their vaccines being more than ~90% effective and are gearing up seeking emergency authorization. This influences stocks of Pfizer (NYSE:PFE) and AstraZeneca, whose vaccines are the talk of the town. GSK and Sanofi (PA:SASY) are also good to keep an eye on as parent companies are partnered together on a protein adjuvant vaccine. GSK Plc additionally has separate partnerships with Medicago, Clover Pharmaceuticals and Vir Biotechnology for COVID-19 vaccines which would definitely influence GSK India’s stock.