Asset Allocation

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How to plan your Equity Allocation for 2021?
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Where do we stand today?
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Covid 19 No Resurgence After First Wave,
Vaccinations Underway
  April 30 2020 June 30 2020 Sep 30 2020 Dec 31 2020
Daily Tests 72,453 217,931 1,426,052 1,127,244
Daily new infections 1,901 18,522 80,472 21,822
Cumulative Cases 33,610 566,840 6,225,763 10,266,674
Of which -Recovered 24,162 334,822 5,187,825 9,860,280
Deaths- Cumulative 1,075 16,893 97,497 148,738
Source John Hopkins University

• There are no signs of a second wave
• Government has approved Oxford-AstraZeneca
  (manufactured by Serum Institute India) Bharat
  Biotechs (Local player) Vaccines for India
• Vaccination started from Jan 16, 2021
• Government plans to vaccinate 300 mln people by
  August 2021

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Down, Down Downbut Glimmers Of Hope With Newest
Reading Showcasing Indian Economys Resilience
Source Bloomberg, as of September 30, 2020.
Note The numbers in red circle are from a
changed data series starting Jan 2015. While a
superior series, there is no comparable number
to equate the New with the Old. Most
economists deduct 0 to 1.5 from the New to
equate to the Old. Or you need to add 0 to
1.5 to equate the old to the New.
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Economic Activity vs Pre-COVID levels
Source CMIE, Bloomberg, QAMC Research
Economic activity in some sectors at 90 and in
some sectors above pre-COVID levels
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Economic Activity vs Pre-COVID levels
Source CMIE, Bloomberg, QAMC Research
Economic activity in some sectors at 90 and in
some sectors above pre-COVID levels
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Government Has Loosened the Fiscal Tap to
Stimulate Demand
  FY20 FY21 RE FY22 BE FY20 FY21 RE FY22 BE
    of GDP   of GDP   of GDP  YoY change ()  YoY change ()  YoY change ()
Centre's Total Revenue 8.6 8.2 8.9 5.2 -8.6 23.4
Gross Tax Revenue 9.9 9.8 9.9 -3.4 -5.5 16.7
Net Tax Revenue 6.7 6.9 6.9 3.0 -0.9 14.9
Direct tax 5.2 4.7 5.0 -7.6 -13.7 22.4
Indirect tax 4.7 5.1 4.9 1.8 3.6 11.4
-GST 2.9 2.6 2.8 3.0 -14.0 22.3
Non Tax Revenue 1.6 1.1 1.1 38.8 -35.6 15.4
Dividends and Profits 0.9 0.5 0.5 64.1 -48.1 7.2
Disinvestments 0.2 0.2 0.8 -46.9 -36.4 446.9
             
Revenue Expenditure 11.6 15.5 13.1 17.1 28.1 -2.7
     -  Interest 3.0 3.6 3.6 5.0 13.2 16.9
     - Subsidies 1.3 3.3 1.7 17.6 147.3 -43.0
     - Defense 1.1 1.1 1.0 8.4 0.2 1.1
Capital Expenditure 1.7 2.3 2.5 9.1 30.8 26.2
Total Expenditure 13.2 17.7 15.6 16.0 28.4 1.0
Fiscal Deficit 4.6 9.5 6.8 43.8 98.0 -18.5
             
Net Borrowing 2.3 5.4 4.1 12.0 123.0 -13.2
Source Budget Documents, As of February 2021
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Estimates Have Corrected, Stage Set For
Double-Digit Growth The Next Two Fiscal Years
Data as of January 2021 Source Bloomberg
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Foreign Capital Pouring In, As Locals Turn
Cautious
Period Net Foreign Activity(USD bn) Net Local Activity (USD bn) Total Activity (USD bn) Change in SP BSE-30 TRI in that period ( ) ( USD)
CY 2003 6.6 0.1 6.7 86.5
CY 2004 8.7 -0.3 8.4 20.5
CY 2005 10.7 3.0 13.7 40.2
CY 2006 8.1 3.4 11.5 51.6
CY 2007 17.7 1.7 19.4 67.0
CY 2008 -12.0 3.3 -8.7 -60.8
CY 2009 17.5 -1.2 16.3 90.3
CY 2010 29.4 -6.1 23.3 24.2
CY 2011 -0.4 1.3 0.9 -35.7
CY 2012 24.4 -3.9 20.5 24.1
CY 2013 20.1 -3.7 16.4 -1.9
CY 2014 16.1 3.9 20.0 29.2
CY 2015 3.2 11.1 14.3 -8.1
CY 2016 3.2 7.1 10.3 0.9
CY 2017 7.8 18.4 26.2 37.8
CY 2018 -4.4 17.6 13.2 -2.0
CY 2019 14.4 7.6 22.0 13.1
CY 2020 23.0 -7.5 15.5 14.5
January 2021 2.7 -1.8 0.9 -2.9
Cumulative 196.8 54.0 250.8 1075.1
Data as of January 2021 Source Sebi.gov.in,
NDSL, Past Performance may or may not sustained
in future.
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Spiking PER Overstates Valuation Given The Prior
Quarters Gap Down
Source Bloomberg. Data as on January 31st 2021.
Past Performance may or may not sustained in
future.
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Factors Conducive for a Revival in Real Estate..
Home Loan Rates at Two Decade Low
HDFC rack rate for home loans in the Rs 3-7.5
Mln ticket size
EMI Current (Rs) 39,330
EMI (One year ago) (Rs) 44,029
Monthly Savings 4,699
Saved due to lower interest rates 10.7
Assumptions- For a home loan of Rs 5 million for 20 years . Interest Rate -2019 8.5 Interest rate-20207.0 Decline in Interest rate1.5 Assumptions- For a home loan of Rs 5 million for 20 years . Interest Rate -2019 8.5 Interest rate-20207.0 Decline in Interest rate1.5
Source QAMC Research, , As on Dec 2020
Reduction in duties Lower EMI Decreasing
prices have improved affordability by 20 !
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Demand Has Surprised Positively, Government Has
Chosen to Spend its Way to a Recovery

• Economic activity has recovered to 90-100 of
  pre COVID levels as demand has surprised
  positively
• 2 decade low interest rates, decrease in prices
  and cut in transaction charges in select states
  has improved Real estate affordability, leading
  to an uptick in transactions
• Budget - Government has chosen to spend on
  Infrastructure, Healthcare Sanitation to try
  and stimulate demand further at the cost of
  fiscal discipline.
• Fiscal deficit is expected to remain high over
  the next five years (4.8 for 2026)

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Risk to the Recovery

• Emergence of a Second Wave of COVID Cases could
  derail economic recovery
• Job Losses amongst salaried employees and Rising
  Inflation may impact consumer discretionary spend
• Real stress in the Banking sector has yet to be
  revealed as recognition of bad loans has been
  deferred after a Supreme court order
• Government finances remains under stress and may
  not have too much room to stimulate if economic
  environment worsens

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Equity Outlook for 2021
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Scenarios To Ponder
Corporate Earnings Liquidity Equity Valuations Equity Returns
Rising Easy High Positive
Rising Tight Moderate Slight Decline
Stagnant/Falling Easy Moderate Slight Decline
Falling Tight Falling Sharp Correction
Most Likely Scenario
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Previous Peaks look like Small Hills Now
Tech Boom
Data as on 9th February 2021. Source Bloomberg.
Past performance may or may not sustained in
future.
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Timing the Markets is a Myth
2000 (11 Feb 2000) 2000 (11 Feb 2000) 2000 (11 Feb 2000)
  Lump Sum SIP
1 Year -27.8 -8.5
3 Year -17.9 0.0
5 Year 2.0 20.3
10 Year 10.7 19.4
2008 (8th Jan 2008) 2008 (8th Jan 2008) 2008 (8th Jan 2008)
  Lump Sum SIP
1 Year -52.6 0.0
3 Year -0.5 23.5
5 Year -1.3 8.8
10 Year 4.9 10.8
Source Bloomberg Past performance may or may not
sustained in future. Based on BSE Sensex Returns
are calculated on the basis of Compounded
Annualized Growth Rate (CAGR)
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There have been years when equity markets had a
brilliant run, years when only bonds were
dependable, and years when gold shined the
brightest, and these periods did not typically
overlap
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Ignore Asset Allocation at your own Peril
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Sensex 49 Sensex 49 Gold 26 Sensex 83 Gold 23 Gold 32 Sensex 28 Sensex 11 Sensex 32 Bonds 9 Bonds 13 Sensex 30 Gold 8 Gold 16 Gold 28
Gold 20 Gold 16 Bonds 9 Gold 24 Sensex 19 Bonds 7 Gold 12 Bonds 4 Bonds 14 Sensex -4 Gold 11 Gold 5 Sensex 7 Sensex 14 Bonds 17
Bonds 4 Bonds 7 Sensex -52 Bonds 4 Bonds 5 Sensex -24 Bonds 9 Gold -5 Gold -8 Gold -7 Sensex 3 Bonds 5 Bonds 6 Bonds 11 Sensex 12
Past performance may or may not sustained in
future The chart ranks the best to worst
performing indexes per calendar year from top to
bottom Data as of December 2020 Past performance
may or may not be sustained in future. Based on
SP BSE Sensex Domestic Gold prices and CRISIL
Composite Bond Fund Index Source Bloomberg
Imagine someone holding an all equity portfolio
in 2008, or holding none in the equity rally that
followed?
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2021- Trying to Time Markets is a Folly Follow a
Simple Asset Allocation Strategy to Deal with
Market Cycles
Wealth Builder
Stress case scenario protection
Keep 6-24 months of expenses in Liquid Fund, Bank
Fixed Deposit to be withdrawn in case of emergency
Please note that the above is the suggested fund
allocation only and is not to be considered as
investment advice / recommendation, please seek
independent professional advice and arrive at an
informed investment decision before making any
investments
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prepared on the basis of publicly available
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