5 questions: Forecast 2021

Fill out our short survey.

There is little time to get marketing budgets, and the pressure is great when it comes to planning. This is nothing new, but the pressure is low and mobile, which reduces non-critical costs and rarely increases ROI.

  1. Will corporate profit growth continue to outpace wage growth?

India Inc. had a good year. The Covid pandemic has given her the chance to cut fixed costs and for the first time below workers’ wages. As early as April, companies were using budget discounts and payment authorizations to save money. The new agreements are almost concluded. At the same time, lowering interest rates has led to lower financial costs. A drop in fuel prices has lowered energy costs.

Corporate earnings were higher than wages in the first half of FY21. This indicates a lack of bargaining power between employees and the decline is expected to continue until 2021.

The increase in profit can be divided into three categories. First, the increase in profitability was disproportionate to the increase in sales, mainly due to a sharp decrease in fixed costs. At Ultratech Cement, personnel costs decreased by 11%, although sales increased by 7% in the second quarter of the year21. This led to a 55% increase in net income. This clearly shows that even with the recovery of the company, employers were in no hurry to claim wages. “Lower costs usually come back with some delay,” said Abhimanyu Sofat, principal investigator at IIFL. This time around, it could play a bigger role in technology costs, such as travel, which will never return.

Second, companies where higher sales led to lower profit growth due to low pricing opportunities, resulting in lower margins. Consumer companies like Hero MotoCorp and Whirlpool are examples of this. Employee salaries are expected to remain low in 2021 as companies first try to restore margins.

  1. Will midsize companies outperform large companies?

The last decade has been a roller coaster ride to the middle bridge. They started well, went through a period of poor performance, and continued between late 2013 and 2017.

Since the beginning of 2018, they have been through a long period of poor performance. His death began with the introduction of a long-term tax and lasted for three years. During that time, the most resilient of these smaller companies continued to perform and grow their revenues, but their valuations have not changed. Can mid-cap companies shine again now, with falling interest rates and rising foreign flows?

The answer is a tempting yes. Valuable investors have lost ground around the world because investing in growth is essential. With a decade of underperformance, value investments (and intermediaries) are poised to come back.

In 2020, the Indian capital’s average surpassed key limits since the March low. While Sensex has grown 84% since March 24, the Nifty Midcap 100 has grown 98%, with its best performance in November. The central capsules generally work for a year before passing through the blisters. Currently, the market is ignoring the FY21 gains and the shares are trading above the FY22 gains. If economic activity normalizes quickly, medium-sized companies will still have room to move forward by 2021.

Smaller companies, which typically operate with a lower profit margin, benefit more from lower interest rates, energy costs, and lower employee wages. As these costs remain low, you can expect profits to grow faster than their larger counterparts. If markets believe these gains are likely to continue, mid-market valuations could rise more rapidly in 2021.

What can invalidate this statement? A rise in global inflation will force policymakers to pursue the global monetary policy. “The market is underestimating the risk of inflation that could arise in the second half of 2021. This is the biggest risk for an excellent mid-cap,” said Sunil Damania, director of investment at marketmojo.com.

3.Will consumer spending decrease?

After India closed, many consumers did it in front of other consumers.

  1. Will the vaccination guarantee be normal?

With a workload in India of more than 10 million in December and concerns about the increase in the mutant strain, a vaccine is definitely a highlight. India plans to start vaccination in early 2021.

Although the government has not yet determined which vaccine to use – options range from Covishield to Oxford-AstraZeneca to Bharat Biotech’s Covaxin – we will not be able to return to the old normal until the end of 2021. A large population takes time.

“The return to normal will never happen in 2021,” said Madan Sabnavis, chief economist at Care Ratings, a credit rating agency. Vaccinating everyone takes a long time … a year or two. In addition, the way we do business has changed, especially since the technology was able to do business during the crisis. “This means that the service sector is likely to undergo major changes and that categories such as travel and entertainment will suffer. We find alternatives in categories such as travel and entertainment, ”adds Sabnavis. People’s preferences have changed. However, production will grow ”.

Nomura, a research and brokerage firm, expects the economy to grow 9.9% in 2021, almost 1% more than China and 2% more than Singapore. The central bank also revised its growth forecast to -7.5% in the year ended March 31, compared to the previous forecast of -9.5%.

“While 2021 looks promising and we can see 9% growth, it is unlikely to last many years,” said Pravakar Sahoo, professor of economics at the Institute for Economic Growth in Delhi. “ At the end of the 2022 financial year, we are again at the end of 2019, which means we have lost two years. The pandemic put pressure on the economy, as evidenced by the budget deficit and low tax collection. Taxes, slower credit growth, and supply disruptions ”.

  1. Will telecommunications tariffs increase?

India’s triple telecommunications war is expected to increase as operators look for ways to raise tariffs. As more and more people at home and at school depend on online courses, personal data is being used more than ever.

A report by the rating agency ICRA dated December 23 states that another cycle of rate increases is underway with the expectation that growth in telecommunications revenue will increase during the 22nd financial year and that the high level of leverage in credit operations business will also lead to greater profitability. to drive. the guide. Rate increases in December 2019 and subscriber updates boosted revenue growth in FY21.

Vodafone Idea has recently raised rates on some of its prepaid plans. The ICRA report states: “ Tariff increases and migration to 4G services are expected to lead to revenue growth of approximately 13% in FY22, 11% growth in FY21 … the operating margin is expected to increase to 37 in FY22. Financial year. . “

According to a report by Emkay Securities, BSNL also saw an increase in its broadband subscriber base. Before October, it had the highest monthly variation, 6.4%. 

Vodafone’s average revenue per user was 114 in the quarter ended in June, compared with 157 for Bharti Airtel and 140.3 for Reliance Jio.

Jio, Airtel, and Vodafone have updated their existing fee plans and new launches in the past two months. In December 2019, a 25% increase in tariffs led to a 20% increase in Vodafone Idea’s EBITDA. ICRA expects the sector’s total debt to remain at 4.7 million until March 31, 2022.

Translate »