“The year 2021 has turned out to be a challenging one due to the onset of a second wave of Covid and the impact of the second wave is unpredictable. Stick to the safe counters,” he told ETNow in an interview.
“It’s a very unusual situation, where some pockets are so good that you cannot believe they were this good, while some other pockets are so bad, you never anticipated this would happen. It’s a mixed scenario,” Agrawal said.
“Speculative gains are possible in the stocks that are small and not-so-good, if the economy settles down. But to believe the economy will settle down in the next 12-24 months will be premature right now,” the market veteran said.
“It is not a time to speculate about the outcome of the second wave or third wave of Covid,” he warned. “The risk is whatever outcome people are pricing in, they don’t know what the risks are ahead.”
Having said that, he said businesses that withstood the Covid disruption in last 12 months well are likely to succeed going ahead.
He sees new opportunities coming up in the pharma sector and in vaccine suppliers. “Besides, commodities are on fire because of the consumption boom. Pharma, software and select financials are building up well,” he said.
Agrawal expects a rise in credit cost for banks amid low interest rates, massive liquidity flow and a partial lockdown, but believes it would still not be as high as last year’s. He expects earnings recovery to be very strong in financials.
In the same breath, he said investors would watch out for asset quality in banks and NBFCs. “The auto sector has gone through some crazy times given the transition from BS IV to BS VI, and also due to the 28 per cent GST,” he said, adding that once commodity prices surge and stay there, it would be much easier for auto makers to pass on the costs to consumers.
“It is a one of the very important manufacturing bases. I believe almost 45-50 per cent. My sense is that this year will not be a great one for auto broadly,” he said.
Agrawal hoped the aggregate demand in the global economy would rise led by China and the US, and one needs to be very selective in figuring out who will benefit and who will lose.
