Top sectors to watch out in 2021

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Indian equity market will continue to stay strong in 2021 with the likely recovery in the economy and earnings. The benchmark equity indices BSE Sensex and NSE Nifty had advanced nearly 16% last year after central banks expanded their balance sheet and interest rates declined sharply leading to a wave of liquidity globally.

Overall, the year 2020 was tumultuous for the domestic equity market due to Covid-19 pandemic. As a result, the Sensex plunged to its 52-week low of 25,638 on March 24, while the Nifty hit 7,511.

Aditya Birla Sun Life Mutual Fund believes that Nifty may deliver a 10-12% annualised return for the next three years. “Goldilocks macroeconomic backdrop (strong growth and low rates) for equities is driving risk-on sentiment globally which should benefit India.”

Good time for midcaps, smallcaps

It also added that during the economic recovery, midcaps-and-smallcaps typically do well.  These stocks have the potential to outperform large caps. The BSE Midcap and Smallcap index had gained 20% and 32%, respectively, in 2020.

The asset manager further said that positive news on the vaccine, faster-than-expected economic recovery, continuing fiscal and monetary policy support, and high liquidity should provide a supportive backdrop for stocks.

“Outlook on most sectors is turning positive. Domestic cyclical and financials can play out in 2021,” Aditya Birla Sun Life Mutual Fund said.

Bullish on GDP Growth

ICICI Securities added that the Indian equities have been a major attraction for investors across the globe. The FIIs have continued to remain net buyers for nine since 2010. It expects the positive momentum to continue on expectation of 8.5% GDP growth in the 2021-22.

HDFC Securities is bullish on sectors like financials, pharmaceuticals, real estate and infrastructure. It believes that financials to benefit from growth pick-up in 2021 and strong capital efficiency and cost controls in the pharmaceutical sector have led to earnings surprises which could continue.

“Pharma also seems to be on a strong wicket with steady domestic demand, especially in chronic segments. Residential real estate and overall capital formation have troughed in 2020 after a prolonged down-cycle and should improve with the help of lower interest rates. Infrastructure sector is expected to do well as government spending remains strong despite fiscal constraints,” it said.

For stock-specific investors, it also recommended players like Bandhan Bank, Birla Corporation, Gail (India), HPCL, Hindustan Unilever, Infosys, Nippon Life, ONGC, State Bank of India and Sun Pharma, among others.