The famous festival of lights will take place on 14 November.
Like many celebrations this year, it will be dampened by the ongoing pandemic and economic uncertainty.
But Ramesh Mantri, adviser to the Ashoka India Equity Investment Trust, believes there is good reason for investors to be optimistic.
E-commerce spike
“While this year’s Diwali Festival may not burn as bright as usual, it remains a huge holiday and one that families across the country will celebrate.
“Many of these celebrations will happen over Zoom, with the usual flurry of gifts and food being purchased from markets across the country also shifting online, leading to a huge spike in e-commerce activity.”
He flagged Dixon Technologies as a key indirect beneficiary of this online shopping surge, with the stock up over 150% in 2020.
“Consumer staples, telecom, healthcare and other such non-cyclical, domestic-oriented businesses continue to rebound, as we see economic activity gradually normalise in the run up to Diwali.”
Increased socialising
Mantri continued: “Many high frequency indicators point to a strong rebound in economic activity leading up to the month of November.
“Malls, bars and restaurants have opened their doors again with social distancing norms in place.
“The goods and services tax, a value-added tax levied on most goods and services sold for domestic consumption, was up 4% YoY in September and 10% in October, as people resumed activities following the lockdown.
“Electricity consumption increased as well, with usage up 19% in October, another good indicator of Indians trying to return to some normality and economic activity increasing as a result.”
Protection and good health
“The global pandemic has refocused the importance of our health and acted as a catalyst for consumer engagement with insurance products,” Mantri added.
“The penetration of life and health insurance in India is still low and has a long runway for growth. Lack of consumer awareness is one of the reasons for this low penetration.
“The emergence of covid-19 has reminded us that we aren’t invincible, and we have seen a surge in demand for life and health insurance products in India alongside this.
“Our investments in HDFC Life and ICICI Lombard, both with leadership positions in the life and general insurance markets respectively, are set to benefit from this trend.”
2021 outlook
“As bottom-up investors, we tend to not have any strong views on the market in the short-term. Our philosophy is to invest in compelling combinations of great business and attractive valuations while maintaining a balanced portfolio construction approach,” Mantri explained.
“We remain confident on the outlook of our select investments in IT services, which continue to gain market share even as businesses around the world accelerate efforts towards cloud migration, digital adoption and modernization of technology infrastructure.
“Further our investments in pharmaceuticals and speciality chemicals are benefitting from the pandemic induced diversification of manufacturing away from China.
“Financials have underperformed during the year, but it is becoming increasingly apparent that the credit costs on account of covid-19 could be materially lower than what was being feared a few months back.”
Indian influence
“The US election result is a milestone moment for India too. The election of Kamala Harris, a person of Indian descent, to vice president is a huge step for the country and shows the growing influence of the fast growing and most affluent ethnic community in US.
“The Democrat administration intends to ease the restrictions placed on issuance of US H1B visas, of which India is the largest beneficiary. The news is another reason for India to celebrate ahead of Diwali this weekend.
“The overall portfolio has held up very well through this highly volatile year, with NAV up 9.3% year-to-date, handsomely outperforming the benchmark by 10%, and is well positioned for 2021,” Mantri said.
