Real economy will start performing in 2021

Those who missed the whole momentum were highly informed people who underestimated the power of regulators and policymakers and the power of the longer-term economy at the cost of short-term economic outbreak, says A Balasubramanian, MD & CEO, ABSL AMC.

What is in store for 2021? Market valuations are indicating a year of low returns?
We have moved away from extreme pessimism of March 2020 without realising how powerful the policymakers’ initiatives can be in bringing back the optimism and hope that set in post the June-July-August period. As we move into 2021, we continue to be optimistic and that has been carried forward from the second half of 2020. The policymakers, be it the RBI or the government of India, have come up with necessary support to help the economy recover.

Many corporates during the pandemic period said that the quarter was a complete washout. But by September, all of them had changed their narratives and said things were looking better. The word that most of them have started using is “unprecedented.” Most of the Indian corporates have been saying that their businesses are back to pre Covid levels. That is where the narrative got changed and this essentially means that the body language and the way people look at the business model, the way the optimism continues would carry forward in 2021 and will lead to an uptick. We will see consumer demand coming back.

Clearly, in 2021, we are seeing carry forwarding of optimism. We will get into a growth path and the real economy will start performing in the current year. We see it as a trend for 2021.

Market old timers say that when there is euphoria in the IPO market and retail activity is high, it is time to watch your back. Both the factors are at play. How would you defend that?
A lot more maturity has come in terms of participating in the market. Direct equity participation has gone up quite substantially in the pandemic period and this also comes on the back of information gathering or understanding of the market. The fundamental angle used to be very limited to a select set of people.

Now with social media and other platforms emerging in the last two, three years, information is available for people to look at equity as an asset class. Therefore, we have seen that IPOs which are good and companies with an established track record are the ones seeing large pools of attraction.

The companies which are not run properly have got question marks on governance and the market is learning to ignore such kind of companies and therefore avoiding any potential accident or mistake that comes in. We started building the mutual fund space just about five, six, seven years back and the mutual fund way of investing via SIPs has to be the way to build.

Equity as a culture has gone up quite significantly and that is good for India, especially for the capital market for raising resources from the companies’ point of view. During this period of pandemic, the number of companies which raised equity capital is quite substantial. That also means corporates are also becoming more concerned about the balance sheet construct, taking into account the last three-four years of bad experience of running high debt. All such things are coming in handy to ensure that investors need to be aware that as long as the fundamentals are good, the market could continue to reward them.

That is the way I see it emerging at this point of time though the market has touched new highs. The fear of missing out (FOMO) is definitely there for many more people. The number of people who have missed this rally are actually the learned people, extremely good in the market. They are highly informed people who have missed the whole momentum that picked up and that is nothing but underestimating the power of the regulators and policymakers, underestimating the power of the longer-term economy at the cost of short-term economic outbreak.

This is a period where the number of people who have not paid attention to quarterly results is far higher than what we have seen historically and this in my view reflects the way you look at the market and the fundamentals.