Market Overview – December 2020


Indian Economy

RBI in its December policy meeting upgraded India’s GDP forecast and expects economy to shrink 7.5% this fiscal vs earlier forecast of 9.5% contraction as the economy is recuperating faster than anticipated. Further, even the IMF upgraded its forecast for GDP growth in FY22 (8.8% growth earlier to 11.5% growth) making it the only key nation to record a double-digit growth and reclaim the status of world’s fastest growing major economy.

Additionally, RBI expects growth to be in positive trajectory for Oct-Dec 2020 period and predicts a V-shaped recovery in FY21 driven by rollout of vaccine. Also, since mid-September, India has done well to flatten the curve of Covid-19 cases. The number of active cases had fallen to 1.5 lakh from a peak of 10 lakh cases in September.

Budget – 2021: A pro-growth budget with very little to dislike

  • The 2021-22 budget is a pro-growth budget with conservative receipt assumptions clubbed with an appreciable increase in spending.
  • The budget positions itself for capex led growth with clear emphasis on infra (road and rail) along with housing and agriculture sector. Further, focus on healthcare and a clear plan on privatizing PSUs are also positives.
  • In a welcome relief, the budget had no negatives in the form of additional cess/tax tweaks. This in itself can be considered as a positive.
  • The steps to on-board off-budget items during a COVID impacted year is to be applauded and sets a clear tone of transparency that would go well with rating agencies.
  • One of the theme that government has spoken about ‘Atmanirbhar Bharat’ has been coming out well in support of domestic industries whether by levying ADDs or announcing PLI scheme or government led investments.

Global Stock Markets

With effects of pandemic receding along with rollout of vaccines across countries, there is increasing optimism on V-shaped economic recovery globally. This along with ample liquidity and remote chances of interest rates moving up from zero atleast in the near term is driving the global rally.

As vaccine distribution picks up throughout the year, it is expected that the global economy will grow at a faster pace in 2021 which should drive record growth in corporate earnings on the back of stimulus package + pent up demand + cost-efficiencies achieved during COVID.

Country-wise GDP estimates (as per IMF) for 2021 and 2022

Indian Stock Markets

When the Covid pandemic started, India was considered as a country at the highest risk levels as we have a substantial population below the poverty line and our medical infrastructure is much inferior to the developed nations. However, as it has turned out, India has managed the crisis extremely well debunking various fears. The Economy bounce back has more certainty in India than in many other nations. This is one of the prime reasons for FIIs bullishness. We feel that FIIs would continue to invest in India on a net basis as India offers one of the best alternatives in the Emerging Markets with excellent market regulations, strong and stable government and growth potential.

With this a new record has been set wherein markets have witnessed more than doubled from lows of 7500 made in early March to life-time highs of 15500+ levels in Nifty in the same year (even on Y-o-Y basis markets has delivered ~25% returns). This recovery has left many in awe, however, as we have tried to explain earlier also, markets always price in what will happen 3-6 months in advance and considering the steep recovery witnessed across industries + the strong dose of liquidity + pro-growth budget + flattening of COVID curve along with rollout of vaccine, markets have scaled new highs.

Corporate Performance

The December quarter earnings (Q3’21) for corporate universe were better than expectations with almost 60% of BSE Top 100 companies managing to beat expectations.  Revenues for the quarter grew by 7% Y-o-Y (7 quarter high) whereas PAT grew by 72% Y-o-Y (fastest pace in 25 quarters). A buoyant festive season, pent up demand, strong rural growth and consolidation in favour of organized players helped overall demand growth whereas operating leverage benefits and COVID led cost savings drove profitability inspite of rising input costs.

The results season began on a robust note with solid outperformance from IT sector on the back of results by TCS, Infosys etc. Further, sectors like Metals, Auto & Auto Ancillary, Banking & Financials, Real Estate, Cement, Consumer Durables, Chemicals and Textiles did very well. However, the highlight of the season so far has been Building Materials segment which were buoyed by solid results across various sub-segments like Paints, Tiles, Pipes, Bath Fittings and Consumer Electricals.


Irrespective of all the above macro details mentioned above, the only thing that matters for making money in stock markets is the underlying growth/fundamentals of your portfolio companies. On the basis of ground level changes, new trends and growth opportunities, we have been constantly taking portfolio structuring initiatives which have yielded positive results. This in addition to the following points gives us confidence in maintaining the recovery observed in our portfolio over the last 6-8 months.

  • Our major holdings performed exceedingly well during the quarter with average revenue growth of 12.5% Y-o-Y whereas operating profit almost doubled vs last year (growing significantly faster than average growth across Mid and Small-Cap universe).
  • Valuations comfort – inspite of the increase in share price across most of our portfolio companies, valuations have not increased i.e. most of the increase is led by growth witnessed in earnings. Weighted average PE of our G+V strategy portfolio is ~15x TTM EPS whereas even for our L&M strategy, weighted average PE is ~25x TTM EPS vs almost 40x for Nifty.

We would like to end the update with the following quote:

 “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections, than has been lost in correction themselves.” – Peter Lynch    

Happy Investing!!