Hopes Of Normalcy Lead Markets Scale New High

The optimism of restoring normalcy in the world economy with the help of the vaccine is gaining strength with every passing day. Based on growing hopes of the situation world over coming back to pre-COVID level, the Indian benchmark continues its sustained uptrend for the ninth consecutive session and the world markets that opened for trading for the first time in the new year were also upbeat.

Top Indian stock measures, Sensex and Nifty crossed 48,000 and 14,000 levels respectively and posted close to one per cent gains at the end of the session on Monday amidst a positive development on the vaccine front. The Indian government allowed emergency use of two vaccines –Covishield and Covaxin-- in the country. This played a crucial role in lifting investors’ sentiment.

Moreover, the manufacturing Purchasing Managers Index (PMI) remained in the expansion zone for the fifth straight month and stood at 56.4 in December (56.3 in November), also providing much-needed ammunition for the indices to scale new highs. Chinese factory activity continued to accelerate in December, though the PMI missed forecasts at 53.0. Japanese manufacturing stabilised for the first time in two years in December, while Taiwan picked up.

A strong December closing of Indian measures has laid the platform for a solid 2021. Pharma & IT were the top-performing sectors of 2020, while Banks were negative. Automobiles and metals delivered positive returns in 2020 after a challenging 2019. Among other developments that have strengthened the optimism includes positive economic data on record GST collection (Rs 1.15 lakh crore in November 2020) and impressive auto sales numbers, particularly in Heavy Commercial Vehicles (HCVs) and Medium Commercial Vehicles (MCVs) segment during December augurs well for the market. Naveen Kulkarni, Chief Investment Officer, Axis Securities said, “We continue to believe that 2021 will be the year of mid and small caps. 2021 is likely to outperform, similar to 2020. Our core themes - digital, telecom, pharma, rural, staples and consumer discretionary, continue to remain relevant in 2021 “.

 Analysts are of the view that "growth and quality" are likely to be the themes for 2021. The focus will be on the BFSI sector and management commentary on the stress challenges, going forward, they opined.

Apart from the Q3 earnings, the Union Budget will be an important event. The finance minister has promised a solid budget, and “this will be critical for manufacturing, pharma and infrastructure sectors. IT and Consumer will report good numbers,” Kulkarni said.

The low-interest-rate has become a major tailwind for the emerging economies across the globe. Based on this, there is optimism that Indian economy can grow by above 10 per cent in 2021-22. This means around a 16 per cent increase in nominal GDP and impressive growth in corporate profits.

The low-interest-rate regime in the developed world and the declining dollar are positives for capital inflows into EMs like India.

However, Dr V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, expressed concerns that the risk is something triggering capital outflows which can cause a sharp correction in markets.

During the day, the bull run on the Indian bourses entered the tenth week, the benchmarks ended a tad-bit lower than record highs but at fresh closing highs.

The S&P BSE Sensex settled the day 308 points, or 0.6 per cent, higher at 48,177 levels on the BSE, after hitting a fresh lifetime peak of 48,220.4 in the intra-day deals. Its NSE counterpart, Nifty50, ended above the 14,100-mark for the first time, at 14,133 levels, up 114 points or 0.8 per cent. In the intra-day trade, the index hit a record peak of 14,148.

On the downside, Nifty Bank, Nifty Private Bank, and Nifty Financial Services indices ended the day in the red. In the broader market, the S&P BSE Midcap index hit a record high of 18,435.14 in intra-day session today, surpassing the previous high of 18,321, touched on January 9, 2018. It ended at 1.4 per cent higher at the 18,421.5 level. The S&P BSE SmallCap index, on the other hand, ended 1.37 per cent higher at the 18,511 level.

Deepak Jasani, Head of Retail Research, HDFC Securities, said, “Markets peaked at a record high with the breadth of the markets improving even further. The post-holiday upbeat mood should sustain for another 1-2 sessions. The level of 14,200 on the Nifty could be the near term target, while a breach of 13,950 could raise some concerns”.

 World stock markets hit record highs on Monday, the first trading day of the new year, as investors hoped the rollout of vaccines would ultimately lift a global economy decimated by the COVID-19 pandemic.

Vinod Nair, Head of Research, Geojit Financial Services said, “The global market has kicked off the year on a positive note as investors across the globe are optimistic about economic recovery on the report over vaccine approval and fiscal support”.