Top Stocks To Buy For 2021 By Axis Securities

2021: A year of resuscitation of growth

As the year 2020 draws to a close and most people would be happy to see the back of 2020, but surely 2020 will be written in the history books for multiple reasons. An interesting article by a leading publication indicated that COVID 19 was the biggest story in the history of mankind. Other events which have had similar impact in terms of media mentions were the two world wars. COVID 19 will shape up businesses over the coming decade but it has also taught people a very valuable lesson that life is not be hoarded but to be lived. This means, risk taking will be coming back meaningfully and a stronger than expected economic revival is likely. The key themes for 2021 are as follows:

Digital, Healthcare and Telecom will continue to have a good run in 2021: All these themes were promising even before COVID 19 but the pandemic has resulted in business transformation decisions which were unthinkable a year back. IT companies in India are winning big transformational deals which will have huge implications over the next few years. Similarly, healthcare and telecom sectors have seen massive changes. Business models are set to evolve further and stocks in these sectors will continue to outperform in 2021.

Year of small and mid caps: After a prolonged period of weakness, the small and midcap stocks have outperformed the large cap indices by a significant margin. The year 2021 will be a year of economic revival with GDP growth rate closer to double digits. Notwithstanding the low base, the economic revival will usher stronger earnings growth. In a year of strong earnings growth, mid and small caps tend to see market beating earnings growth and rerating. Small and mid cap stocks are likely to deliver very strong returns and when combined with other dominant themes then returns will be even stronger.

BFSI and Atmanirbhar to see strong traction: The immense liquidity within banking system has meant that the sector is now focused on growth. NPAs are likely to be contained well and the banks have raised enough capital to tide over the stress challenges. As growth becomes the focus for banks, stock returns will track credit growth and pre provision profits which are likely to be significant. Apart from BFSI, the Union Budget for 2021 will be very critical with major schemes for manufacturing companies expected. This could mean a wide range of Atmanirbhar (self-sufficiency) schemes are in the fray. This could help the manufacturing sector immensely.

Sector rotation and impetus on infrastructure will be critical: Equities have seen significant flow of FII liquidity and solid sector rotation theme playing out. Even PSUs have started performing in the last couple of months as they were immensely undervalued. Sector rotation theme is likely to play out in the early part of 2021 as underperforming sectors like FMCG could gain traction. Also, budget could put more thrust on the infrastructure sector as that is the key for creating jobs. Thus, sector rotation and selective plays related to infra could deliver good returns in 2021.

Our top picks for 2021 are:

Infosys, Bharti Airtel, Colgate, Relaxo Footwear, Amber Enterprises, Ujjivan Small Finance, Star Cement, Solara Active Pharma and Nocil.