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Sunday, April 11, 2021

Sensex rallies 68% on liquidity, record FPI flow

The recovery was aided by surplus liquidity provided by the Reserve Bank of India (RBI) and record investments by foreign portfolio investors (FPIs).

Written by George Mathew
Mumbai | April 1, 2021 3:12:53 am

IT WAS a year of recovery for the stock markets. The benchmark index — the Sensex — jumped by 68 per cent in the fiscal year 2020-21 which was rocked by the Covid-19 pandemic and the consequent contraction in the economy.

The recovery was aided by surplus liquidity provided by the Reserve Bank of India (RBI) and record investments by foreign portfolio investors (FPIs). The benchmark Sensex ballooned by 20,041 points from 29,468.49 on March 31, 2020 to 49,509.15 during the fiscal.

On Wednesday, however, the Sensex — which crossed the 50,000 level earlier this fiscal — fell 627 points to close FY21 at 49,509.15, and the NSE Nifty Index lost 154 points to 14,690.70 in the selling spree. FPIs invested a record amount of Rs 2,74,503 crore in 2020-21, the biggest FPI flow in a fiscal year ever since the markets were thrown open to foreign investment in 1993.

The previous record FPI inflow was Rs 1,40,033 crore in 2012-13.

Analysts and brokers said the measures announced by the government and the RBI to put the economy back on the rails aided the bulls on the stock market. The market rally was sustained even after the GDP contracted by 23.9 per cent in the June quarter.

“As FY21, which was a painful disaster for humanity but, paradoxically, beneficial for global stock markets – comes to a close, there is hope and optimism in the air. Even though Covid cases are rising in many areas, it is clear that in the race between the vaccine and the pandemic, the vaccine would win,” said V K Vijayakumar, chief investment strategist at Geojit Financial Services.

Economies are expected to rebound smartly in FY22 in the wake of vaccination drive and mega infrastructure plan by the US. While many sectors have showed a recovery from the lows of April and May, the RBI has already projected a 10.5 per cent growth in GDP in 2021-22. “But markets have already discounted this and valuations are high. But this is unlikely to deter the bulls in the short run,” said an analyst.

With the economy on a firm footing and corporate performance expected to remain strong, the markets are expected to remain stable unless new risks emerge in the coming months, said BSE dealer Pawan Dharnidharka.

Investors would now focus on upcoming quarterly results which would kick start from mid-April and the RBI monetary policy scheduled next week. Domestically, concerns over the fast spreading second wave of Covid in India continue to remain and the fear of possible lockdown in several states prevail.

“Overall markets are likely to remain in a consolidative mode for some time awaiting fresh positive triggers. Hence investors would do well by gradually accumulating good quality companies on any declines in the market, said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services. Buyers, especially mutual funds, who didn’t miss the opportunity to accumulate stocks at low levels in April and May have made windfall gains during the fiscal.

Joseph Thomas, head of research, Emkay Wealth Management, said , “The fall in the markets due to severe economic distress proved to be the best investment opportunities. The star performers among individual sectors were IT, pharma and banking. As we enter the new financial year, there is a ray of hope that the economic performance will continue with support from fiscal and monetary policies, and the second wave of the pandemic may be well under control as the vaccine rollout is underway across the globe.”

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