“Isn’t it crazy, how we can look back a year ago, and realize how much everything has changed? The number of people we miss from our lives. The memories you won’t forget and the moments you wish you did. It is crazy how all that happened in just 1 year” - Unknown.
The world started of 2020 in fine fettle, with most global stock markets rising to all-time highs in January, followed by the onset of corona virus pandemic which crashed the stock markets in March and a slew of lockdown introductions shutting economies down. The resulting job losses, business disruptions were too severe and hence, moratoriums ensued, to protect citizens and companies from bankruptcies. Work from home became the new normal as infections multiplied dramatically. A gradual recovery in health situation with economy limping back up, and the pursuit of vaccine moved the markets to all-time highs, once again by the end of the year. Nifty50 fell 40% between January & March and then rose by 86% from the lows of March. All in a matter of just one year.
While the new strain of corona virus is rearing its head, governments around the world are better prepared to contain and prevent the spread of infections. The recent emergency use approval for two vaccines in India is a positive boost and the government is preparing to undertake a mega vaccination drive, with a blueprint ready, upgrading cold-chain infrastructure for last-mile delivery, and dry runs. It is still our civic duty to continue and maintain proper health and hygiene for still some time to come.
Continuing the good performance of November, global stock markets did well in December too, with HNX 30 emerging as the best performing index for the month (16.6%) and also for the year (76.6%). Major Indian indices – Sensex 30 and Nifty 50 - performed well above the global average (3.4%), with returns of ~8%. For CY2020, the indices ended with ~ 15.4% return on an average, much above the global average of 7.6%.
A capture of Nifty50 daily movement shows that barring March, April months, the index was mostly in a steady zone, all round the year. 23 March recorded the worst intraday fall at (-)12.98% and 07 Apr saw the best intraday rise at 8.76%. In 2020, the Nifty Mid Cap 100 Index & BSE Small Cap Index have gained 22% & 32% respectively, beating Nifty50 returns. The defensive sectors, BSE Healthcare (62%) and BSE IT (56%), gave exceptional returns.
Among the Nifty Indices, Nifty Realty had an excellent month delivering a 20.2% return in December, followed by Nifty PSU Bank at 12.5% and Nifty IT at 11.4%, trailed by Nifty metal, Nifty media with similar returns. Among all indices, though Nifty Auto, Nifty Energy and Nifty MNC ended in the positive, it was with lower gains.
Among Nifty50 companies, Asian Paints was the stock of the month with a 24.8% return, followed by Gas Authority of India at 20.07% and Oil and Natural Gas Corporation at 18.54%. For the quarter ending December, Tata Steel was the top performer with a 78.92% return, followed by IndusInd Bank at 69.69% and Bajaj Finance at 61.51%.
However, the top 5 best performing stocks of the year were: Divis Laboratories (108.14%), Dr. Reddys Labs (81.08%), Infosys (71.76%), Cipla (71.47%) and HCL Technologies (66.55%).
Gush of liquidity accompanied by weakened dollar, as well as copious amounts of fiscal stimulus, and aggressive monetary policies across western nations, resulted in continued FII inflow momentum from the previous month. In Q3, FIIs invested close to 1.28 lakh crore, while DIIs sold Rs.1.03 lakh crore.
For the year, FIIs pumped in Rs.65,246 crore while DII net flows were (-) Rs.35,663 crore, resulting in Nifty 50 delivering returns of 14.9%. This trend continued from the previous year, when positive net flows from FIIs resulted in Nifty 50 ending up with 12% return for CY2019.
Consequent to this rise in stock markets, BSE equity market capitalization rose Rs.13.88 lakh crore to end the year at Rs.188 lakh crore, an all-time high.
In currency, INR appreciated by 1.29% versus the dollar to end at 73.05 by the end of the year. For the CY2020, INR depreciated a total of 2.57% from 71.22/$ in January 2020. RBI’s dollar purchases in the foreign exchange market kept the rupee in the 73-74 INR/US$ range in December.
India’s foreign exchange reserves rose by US$20.3 billion for the month, to end the calendar year at US$580.8 billion. For 2020, RBI added a total of US$123.3 billion, provide import cover of around 17 months.
Barring natural gas, aluminum and lead, prices of most commodities moved up in December. After hitting theUS$2000-mark, gold has been trending down and consolidating in the recent weeks. Since end of October, many central banks reduced their holdings while retail and institutional investors sold gold ETFs.
Gold had an average month with a 3.79% rise vs. Nifty 50 return of 6.7%, but for the calendar year, Gold has risen by 28% vs. Nifty 50 rise of 14.90%. This is the second year of double-digit gain for gold. With global interest rates low and ample liquidity, inflation is expected to be on the higher side in 2021, which can push the gold prices higher. However, for the current period owing to covid vaccines coming into play, investors are opting for higher risk in equities.
On the economic front, the agricultural sector remains the bright spot, with healthy year-on-year growth of 2.9% in rabi sowing, accelerating tractor sales, and reservoirs’ live storage at 122% of decadal average. The Centre’s fiscal deficit stood at 135.1% of budget estimates from April to November. As on 25th December 2020, the Central Government gross market borrowing during FY2020-21 reached Rs.10.27 lakh crore (compared to State Governments’ Rs.5.37 lakh crore), witnessing a 66.2% y-o-y growth (compared to State Governments’ 42.1%).
Inflation was on the higher side for most part of 2020, averaging above the 7% mark. While the overall consumer price index inflation came in a tad below the previous month’s number of 7.61, food inflation did drop down to 6.93 from the previous month’s 11.07.
The combined index of eight core industries stood at 125.9 in November2020, which declined by 2.6% (provisional) as compared to the Index of November2019. Its cumulative growth during April to November 2020-21 has been (-) 11.4%.
As per Department of Economic Affairs monthly report, steel production showed sequential growth with steel consumption recording high year-on-year growth, indicating an accelerating construction sector. Sustained spurt in commercial and industrial activity was further corroborated by continued growth in PMI manufacturing, power demand, persistent improvement in E-way bills generated and highway toll collection rising above pre-Covid levels. Monthly GST collections attained their record levels in December. The growth momentum in rail freight traffic remains upbeat, as passenger earnings begin to recover, port cargo traffic grows y-o-y, and domestic aviation picks up further. The digital payment upsurge too continues unabatedly, powered by resumption of economic activity, financial inclusion through Aadhar enabled Payment Systems, and behavioral shift to digital payments.
India’s merchandise trade data for December 2020 shows that, exports for FY2020-21 stood at US$26.9 bn vs. $27.1 bn on a year on year basis, registering a 0.80% decrease. Imports during the same period were registered at US$42.6 bn vs. $39.6 bn, indicating an increase of 7.6%. On an overall basis, India is still a net importer, with a trade deficit of US$15.71 bn vs.US$12.49 bn on a Y-O-Y basis.
The Indian economy is still in a revival mode. A few sectors are showing growth prospects while certain segments of the economy continued to be under immense pressure. The positive trend of indirect tax collection continued into the latter half of the year. GST collections for December were the highest ever at Rs.1.15 lakh crore, recording an increase of 11.6% on a Y-O-Y comparison.
India’s chief drug regulator approved two COVID-19 vaccines for “restricted emergency use” in the country recently, opening the doors for a mass vaccination campaign against COVID-19. The approved vaccines include the AstraZeneca-Oxford vaccine, to be manufactured at large scale in India by the Serum Institute, and an indigenous vaccine developed by India’s Council for Medical Research, and to be produced by the Hyderabad based company Bharat Biotech. This news boosted the market sentiment, with expectations of a higher and a faster economic recovery. As Oprah Winfrey said “Year's end is neither an end nor a beginning but a going on, with all the wisdom that experience can instill in us. Cheers to a new year and another chance for us to get it right”.
What does January hold for the Indian stock markets?
Over the past 12 years, Nifty 50 registered negative returns on 7 occasions due to various reasons. Richly valued markets, worries of impending Union Budget etc have played a major role on quite a few instances in recent years. However, with liquidity aplenty, nothing can be assumed or taken for granted.
Earnings season is round the corner and expectations of better performance from India Inc in terms of sales and profits are running high. Any disappointment in Q3 performance on already richly valued stocks can result in a substantial correction. Investors are expected to track the performances closely and make appropriate changes to their portfolios. As done during every quarterly financial season, FYERS Research team will collate and present the financials of top 250 companies in their monthly newsletters.
With interest rates trending down over the last year, fixed deposit rates have dropped to 5.1% (1-year rate) while inflation averaged above the 6% mark decisively. With growth clearly a priority for RBI and government, interest rates will continue to remain lower for CY2021. This puts effective rate of return in the negative territory and fixed deposit as an avoidable investment option for the next year. On the other hand, low interest rates could boost rate sensitive sectors including realty, auto and infrastructure-oriented companies.
Though many sectors might seem expensive in the near term, a few could continue their outperformance in 2021 too. IT, Pharma, Metals, FMCG and Financials could be top 5 sectors to invest with a 65% allocation, with balance allocation to automotive and infrastructure related sectors – capital goods, realty & energy. Old economy sectors have been consolidating for many years and are now nearing major breakouts, and can possibly emerge as strong performers in CY2021. With expectations of a strong economic recovery and government initiatives (PLI schemes, Atmanirbhar Bharat program, MSME funding, privatization) providing impetus, these sectors could deliver excellent returns, providing ample opportunities for investment at periodic intervals. Downside risks to economy due to prolonged impact of corona virus pandemic and liquidity issues due to FII/DII fund flows do remain, which can cause serious bouts of volatility and result in shallow corrections from time to time.
Strategize and plan ahead, reorganize your portfolio to suit the current & emerging trends and stay the course for the year. Wishing you and everyone near and dear, a very happy new year, and the best of season’s greetings.
Stay healthy and stay safe.
Happy Trading & Investing!