“November: The last month of autumn, but the beginning of a new adventure; time to take a risk and do the unexpected.”— unknown.
Investing is all about indulging in opportunities with measured risk, and November was a month to remember. The uncertainty of US presidential elections, corona virus vaccine progress, lower economic growth and the risk of second wave of virus infections, were put aside by stock markets worldwide and investors took a leap of faith. Hardly the thing a short-term investor would do so late in the year, but disciplined investors with a long-term view hit a jackpot. The progress of vaccine readiness added a huge dollop of cheer to the noteworthy economic recovery as compared to the previous quarter.
Before we jump in to stock markets, an overview of the Covid -19 situation. Number of confirmed cases of COVID-19 globally now exceeds 6.4 crore with more than 14.9 lakh deaths (Source: Department of Economic Affairs, November Monthly Report). There has been a resurgence of new cases with daily cases varying between 5- 6 lakh per day, with concentration in United States, Brazil and India. Many European countries responded to the resurgence of fresh cases by imposing partial, shifting and focused lockdowns of ‘hot-spots’. Though concerns over the pandemic remain, the positive news on the vaccine front has raised hopes of a global economic recovery. With India reporting a relative decline in daily COVID-19 cases and improved recoveries, India’s global position in number of active COVID cases moved down from second to seventh; still a collaborative work in progress by citizens as well as state and central administrations.
The Spanish, Austrian and Italian stock markets topped the list, delivering more than 22% returns in a month! That is quite substantial by any measure, considering the handsome recovery already in markets from their March lows. 13.14% was the average return across these 44 global stock markets and 19 of them ended with returns above the average. Indian Indices did deliver a substantial 11.4% return, after the 3.5% return in October.
Among the Indian sectoral indices, metals and banks had a blowout month, delivering 24.8% and 23.9% returns respectively. As defensive sectors like IT and Pharma took a backseat, risk and value opportunities came to the fore with investors opting for stocks in Auto, Realty and public sector enterprises. November rally was broad based with midcap 100 and small cap 100 indices delivering returns of 15.5% and 13% respectively, comparatively better than the 11.4% return of Nifty 50.
It is not a common sight for a high priced, large cap stock from the major benchmark index to deliver a 50% return in a month. But it did happen in this month, courtesy of Bajaj Finserv and by its subsidiary, Bajaj Finance. An unbelievable 57.15% and 48.35% return from these two stocks was followed by a notable return from IndusInd Bank at 46.43%, and also Tata Steel at 40.63%. Only 5 stocks ended with negative returns, with the market cap topper, Reliance Industries closing the month with a 6% cut.
Flush with liquidity, FIIs poured money into the Indian market at an average of Rs.3,500 crore per trading session and over the 19 trading sessions in November, Rs.65,320 crore flowed-in freely and countered the relentless selling by DIIs. As of 30th November, FIIs net flow for CY2020 is a positive Rs.17,000 crore, compared to the positive flow of Rs.1,630 crore from DIIs.
Consequent to this rise in stock market, BSE equity market capitalization rose Rs.16.22 lakh crore, to end the month at a record high of Rs.174.14 lakh crore.
Currency movement was limited, with INR appreciating by 0.73% against the dollar, to end at 74/$. RBI’s dollar purchases in the foreign exchange market continue to keep the rupee largely range bound at 73.8-74.7 INR/USD in November. Accumulation of dollars is enhancing liquidity in the banking system, keeping bond yields in check and supporting effective transmission.
On the back of a purposeful dollar buying by RBI, rise in gold reserves and foreign currency assets, India’s foreign exchange reserves climbed US$ 14.28 billion to end at US$ 574.82 billion as on 27th November, covering around 16+ months of imports.
Commodity prices bounced back in November, especially crude oil, with Brent rising by 28% and WTI by 27%. Natural Gas, which had an excellent September with 39% return, fell by 12.2%. Gold and silver continued to stay subdued due to higher economic activity and progress of vaccines, while non ferrous and other precious metals continued their upward trajectory. These developments accentuate the significant downside risks to the recent upward revisions to IMF’s global output forecasts in its October 2020 World Economic Outlook.
While consumer inflation continued to remain low in developed economies, reinforced by moderated energy prices, India continues to witness higher inflation owing to higher food and fuel inflation. The Monetary Policy Committee (MPC) created with the view to maintain price stability and accelerate growth, has been unsuccessful till date in meeting its objectives. While inflation rose, GDP growth fell quarter after quarter (even before the onset of the corona virus pandemic).
Inflation rate hasn’t abated in almost a year while the interest rates have plunged to a 5-year low, resulting in effective rate of return being negative. With incomes on the lower end and safer avenues of investment diminishing, investors are left with no option but to seek higher risk-oriented returns, which is evident from the stock market participation in the current year. High liquidity continues to ease G-Sec yields, while corporate bond yields continue to be in a tight range.
As on 20 November 2020, the Central Government gross market borrowing for FY2020-21 has reached Rs. 9.05 lakh crore, while State Governments have raised Rs.4.73 lakh crore. While Centre’s borrowings are68% higher than the amount raised in the corresponding period of the previous year, state governments have seen a step up of 50%.
India’s GDP staged a resilient V-shaped recovery in Q2FY21 suggesting that the resumption of economic activity has been gathering pace. India’s GDP growth rose to (-)7.5% YoY in Q2, a sharp rebound from the lockdown-induced decline of (-)23.9% in Q1.
As per Department of Economic Affairs Monthly Report, the index of eight core industries contracted slightly more in October than in the previous month due to a large contraction in production of petroleum refinery products. This also led to a contraction of petroleum exports.
Manufacturing PMI moderated to 56.3 in November against the decade high level of 58.9 in October. Power consumption and E-Way bills are seen to sustain the growth momentum in November along with continuous increase in average daily electronic toll collection, double digit growth in rail freight traffic and gradual recovery in passenger earnings. Port cargo traffic has almost converged to the previous year level in October with domestic aviation steadily adding passengers, month after month. With consumption of petroleum products also emerging out of its seven-month contraction in October, a domestic impetus to growth is more visible.
Highlights of Q2FY21 GDP Data: (Source: MOSPI)
- GDP at Constant (2011-12) Prices in Q2 is estimated at Rs. 33.14 lakh crore, as against Rs.35.84 lakh crore in Q2FY20, showing a contraction of 7.5% as compared to 4.4% growth in Q2FY20.
- GDP at Current Prices for Q2 is estimated at Rs.47.22 lakh crore, as against Rs.49.21 lakh crore in Q2FY20, showing a contraction of 4.0% as compared to 5.9% growth in Q2FY20.
- GDP at Constant (2011-12) Prices for H1 (April-September) FY21 is estimated at Rs. 60.04 lakh crore as against Rs.71.20 lakh crores during the corresponding period of previous year, showing a contraction of 15.7% in H1FY21 as against growth of 4.8% during the same period last year.
- GDP at Current Prices for H1FY21 is estimated at Rs.85.30 lakh crore as against Rs.98.39 lakh crores during the corresponding period of previous year, showing a contraction of 13.3% in H1FY21 as against growth of 7.0% during the same period last year.
India’s merchandise exports at US$ 23.43 billion contracted by 9.1% in November, 2020 as against US$ 25.77 billion in November 2019, primarily driven by weak petroleum products exports. India’s merchandise imports in November2020 stood at US$ 33.39 billion as against US$ 38.52 billion in November 2019, with YoY contraction at 13.3%. This resulted in a merchandise trade deficit of US$ 9.96 billion, as against the deficit of US$ 12.75 billion in November 2019.
India’s overall trade balance (Merchandise and Services combined) is estimated to be in surplus at US$ 16.5 billion in 2020-21 (April-October) with overall exports and imports are estimated to be US$265.1 billion and US$ 248.6 billion respectively.
Major export commodities showing highest increase and decrease:
Overall, the economy is not out of the woods but is exhibiting signs of a remarkable recovery with downside risks due to a second wave of corona virus infections. It is imperative that citizens continue to maintain the same intensity (as seen in the earlier months of lockdown) regarding their own health and the well being of others around them. While commercial availability of vaccines is expected to be on a fast track, individual guard cannot be lowered at this stage.
What does December hold for the Indian stock markets?
Nothing conclusive can be drawn from the past and is also not apt to do so, considering the FII flows and investor behavior in November. But the usual cautious note applies, as the year comes to an end and many foreign investors would probably want to shore up the profits made during the year, and share with their clients.
As we continuously track the movement of Nifty 50, three months before and after, during a US presidential election year, an interesting observation emerges – this November was like no other in the last 5 election years. So, any expectation of either positive or negative movements in December would be unfounded and baseless.
The best thing to do would be to evaluate the portfolio and weed out the non-performers, companies with poor financials, and to refocus the portfolio with the right mix of growth and value-oriented stocks. The all-time highs of the stock markets present the perfect opportunity to do so. Hopefully, clients do take this opinion under advisement and make the best of what the stock market has to offer in the times to come.
Repair, refocus and reenergize your portfolios in December.
Stay healthy and stay safe.
Happy Trading & Investing!