“We expect 18 per cent total US dollar returns for Asia Pacific regional equities in 2021 as the global economy recovers from the pandemic shock and regional profits rebound from suppressed levels. An upturn in growth and a lag in policy tightening create a sweet spot for equities, especially with light investor positioning,” wrote Timothy Moe, co-head of Asia macro research and chief Asia-Pacific equity strategist at
Barely a fortnight ago, Christopher Wood, global head of equity strategy at Jefferies hiked allocation to Indian equities in his Asia Pacific ex-Japan relative-return portfolio by one percentage point. Those at Credit Suisse, however, maintain an underweight stance on Indian equities for now in the Asian region, but expect the laggards to perform well in absolute terms going ahead.
After a subdued performance for most part of the year, Indian equities are entering Samvat 2077 at record highs. From March 2020 lows, Indian markets
have bounced back sharply with the S&P BSE Sensex and the Nifty50 rallying around 69 per cent each. On a year-to-date basis, the performance, however, has been a bit subdued with both these indices gaining 5 per cent.
The change in stance for these foreign brokerages comes despite the economic stress induced by Covid-19 pandemic that saw country’s gross domestic product (GDP) contract 23.9 per cent in the first quarter of the current fiscal (Q1FY21). This, however, is likely to change, Goldman Sachs
“The overarching macro theme for 2021 is a robust growth recovery as the global economy rebounds from the effects of the pandemic. We expect above consensus growth globally (6 per cent vs. 5.2 per cent) and in Asia Pacific (7.5 per cent vs. 7.3 per cent),” Moe said.
As regards India, Goldman Sachs pegs the real GDP contraction in 2020 at 8.9 per cent and a sharp recovery to 10 per cent in 2021, followed by a mild cool-off to 7.2 per cent in 2022. Average wholesale price inflation (WPI) is likely to hover at 4.8 per cent in 2021 and at 4.2 per cent in 2022, Goldman Sachs believes. Their 12-month forecast for the rupee (INR/USD) is 70.
After falling 5 per cent in 2020E, regional earnings are set to expand 23 per cent in 2021 and a further 16 per cent in 2022, Goldman Sachs believes, but cautions that the market may have priced in the earnings recovery one-year ahead. “The absolute level of regional EPS may regain the previous 2017 peak by end-21 and make new highs in 2022, providing fundamental support to equity markets,” Moe believes.
Earnings at the aggregate level for Indian companies, Goldman Sachs notes, are likely to come in 11 per cent lower in 2020 (FY21) against a consensus expectation of a 7 per cent dip. However, it expects a sharp rebound at 27 per cent in 2021 (FY22; consensus 26 per cent) and 21 per cent in 2022 (consensus 24 per cent).
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