A lot of you are perhaps waiting for 2020 to be over. It has been one exasperating year for those looking to do new things, sustain existing livelihoods and grow. There are visible signs of a recovery underway in the economy. Yet, there are a ‘ifs’ and ‘buts’. Europe and North America are witnessing the second wave of new coronavirus infections. Financial markets around the world are energised following the hope that the world would have a vaccine early in 2021.
UBS, a global bank, expects a rollout of the vaccine around the world in the first half of 2021. That would enable global output and corporate profits around the world to get back to pre-pandemic levels. Morgan Stanley, an international bank, has raised the forecast for the December 2021 S&P BSE Sensex to 50,000. They are more bullish than the average estimates put out by analysts. Their research shows that companies were quick to cut costs to protect profit margins as revenue slowed during the Covid-19.
A survey of manufacturers by FICCI, an industry body, for the second quarter of 2020-21 ended in September 2020 suggests a rise in overall capacity utilization in manufacturing. That is important from the future growth standpoint. If factories produce more, that could mean more people can get back to work quickly. Analysts seem to be optimistic about things ahead in 2021. That is good news for the stock market and your investment in equity assets. There are inflation concerns, but overall outlook for equities is positive for the New Year despite a significant run-up and share prices hovering around record highs.
What could go wrong in 2021
The most crucial aspect to look at would be the surge in new infections. The US and Europe are reeling under a ‘second’ wave. In India, numbers are declining, but there are pockets like Kerala, Delhi and West Bengal showing a rising trend. Some experts say that the second wave in India could happen in January 2021 and that could be significantly bigger than before.
The government response to that situation would be watched closely by financial markets. In the same FICCI survey, only 18 per cent of respondents from the industry reported plans for new capacity additions for the next six months. It appears that businesses are happy to go back to pre-Covid capacity. However, the economy needs companies to add new capacity to stimulate growth and create jobs for the ever-increasing workforce. Most business owners said in the survey that it is still not easy to get faster approvals for setting up new factories.
The critical aspect is government response to the second wave. A nationwide lock-down is completely ruled out. The government’s economic response is also key. Thus far, foreign investors seem to be impressed by government action on labour and land reforms, production linked incentives, agriculture reforms among others, says Morgan Stanley, a global bank. They have injected $ 6bn in the three weeks of November 2020.
What it can mean to you
Despite share prices rallyingnear record highs, analysts of both foreign and local brokerages suggest that there is more to the upside. Your equity investments could continue to do well in 2021. However, you may want to refrain from putting too much money directly into stock markets. Regular investing through mutual funds in 2021 could be a way to go.
Interest rates on your savings could continue to remain under pressure next year. Most analysts expect consumer price inflation to remain benign in the next few weeks. That should help the Reserve Bank of India to continue with their ‘accommodative’ monetary policy stance. That means borrowing rates for a home loan, business and other borrowers would remain the same or trend down.
Having meaningful conversations over money should be your priority for 2021. A key factor is a way you do the asset allocation. You should put the right amount of money into each asset class based on your ability to withstand risk. Thus, 2021 may be a good year for professional advice on personal finance matters. If you have yet to engage one, you should get one.
(The writer is editor-in-chief at www.moneyminute.in)