India rally to continue in 2021 as banks take over Reliance peak

Bloomberg

India’s record-breaking equity rally will continue next year, with banks and other stocks taking over as drivers from the nation’s largest company Reliance Industries, some fund managers say.
Reliance has accounted for nearly a fifth of the 75% surge in the S&P BSE Sensex from its March bottom, according to data compiled by Bloomberg. That’s about double the contribution Apple has made to gains in the S&P 500 Index over the same period. Some market watchers say Reliance’s gains may have peaked for now, prompting the search for new leaders.
The prospects for global recovery amid progress with Covid-19 vaccines has caused investors to shift focus from defensive growth stocks to cheaper economically sensitive shares. That may be particularly good news for financial stocks that have lagged in the rally that has driven the Sensex to an all-time high and propelled India’s total market value to over $2.3 trillion.
“Banking and financial stocks could have the most scope to take the market leadership,” said Mahesh Patil, co-chief investment officer at Aditya Birla Sun Life AMC Ltd in Mumbai, which had assets under management of around $31 billion as of end-September. He also said metals stocks should perform well because China’s economy is growing again.
Reliance’s performance has been driven by billions of dollars of investment in its
businesses by the likes of Facebook Inc and Alphabet Inc’s Google, which should help speed the Indian conglomerate’s transition from energy to digital services. Its shares surged to a record in September, pushing their earnings-based valuation to about double the five-year average, though Reliance has slipped 14% since then.
“It’s hard to get excited by energy prospects at this time, or price digital services significantly ahead of where the implied value already is,” said Piyush Sharma, who manages the Minerva India Underserved portfolio for Right Horizons. “Our sense is market leadership could shift away from the likes of Reliance over the next year.”
That thought is echoed by Sachin Shah, a fund manager at Emkay Investment Managers Ltd in Mumbai, who expects to see “a much more broad-based rally over the next few quarters.” The S&P BSE SmallCap Index has climbed 29% this year, while the S&P BSE MidCap Index has gained 18%, both outpacing the 11% advance for
the Sensex, after two years of underperformance.