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Nilesh Shah, group president and managing director of Kotak Mahindra Asset Management, has warned that 2021 will be a volatile year for equities, as there are doubts around the world about the effectiveness of vaccines. Although he doesn’t see Indian equities in a “bubble zone" yet, he has cautioned investors against going “overweight" on these.

True, since many believe that covid jabs were rushed out, vaccine hesitancy could delay the programme, thus delaying our return to normalcy. Also, if corporate earnings fail to catch up with stock valuations that have reached treacherous levels, it could trigger a stampede as investors look for an exit. The vertiginous rise of the Sensex, which has almost doubled from its March lows, has cheap foreign capital looking for high returns in emerging markets to thank, mostly. Worryingly, though, evidence of a topline corporate recovery has been all but absent so far, and business expansion is the only way for profits to go up sustainably. Profits eked out through cost compression has its limits. With the earnings growth trajectory still so uncertain, investors, flush with easy money, or not, must exercise caution.

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