While 2020 has been a rollercoaster ride for stock markets, 2021 promises to be a year of further consolidation and recovery. After the 39 per cent collapse triggered by Covid-19 and lockdown in March and April from the high achieved in January, the Sensex ended the year at an all-time high, with a 15.75 per cent gain.
The 30-share index, which began the year at 41,253.74, plunged to a low of 27,590.95 on April 3 and finally closed the year at 47,751.33, up 15.75 per cent on a year-on-year basis and a phenomenal recovery of 73 per cent from the April low amid worries of overvaluation and excess liquidity.
The NSE Nifty jumped from 12,168.10 on December 31, 2019 to 13,981.75 on Thursday, registering a gain of 14.90 per cent. It skyrocketed 86 per cent from the April low in a rally propelled by foreign portfolio investors (FPIs), who invested over Rs 1,70,000 crore in 2020. As much as Rs 1,20,000 crore of FPI flows came in November and December, pushing up the valuations.
The GDP had contracted in the June quarter and 7.5 per cent in the September quarter. “As the economy is slowly recovering, markets will get a boost provided new risks and uncertainties don’t emerge in the new year. Nobody expected the Covid crisis to hit the country and the economy in 2020,” said BSE dealer Pawan Dharnidharka.
The stock markets have already taken note of the pace of recovery. The real GDP is expected to break out into positive territory with a slender growth of 0.1 per cent in the third quarter ending December 2020, a Reserve Bank of India (RBI) study said. The recovery will gather momentum as the economy is likely to clock a growth rate of 14.2 per cent in the first half of 2021-22, it further said.
“Value stocks which have been out of favour in the last few years due to slow economic growth have done well over the last few months as economic growth rebounds and they narrow the growth differential, reducing valuation discount,” said Nilesh Shetty, fund manager, Quantum AMC. However, much will depend on the vaccination and how the government tackles the pandemic.
“Despite the havoc created by the pandemic, the economy is expected to recover in 2021, giving a boost to equity markets in addition to upgrades in corporate earnings,” said Vinod Nair, head of research, Geojit Financial Services.
As the Covid infection hit the world at the start of 2020, governments announced lockdowns to limit its impact. After the initial period, it became evident that lockdowns were not sustainable and governments started reopening the economy gradually.
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