Markets remain buoyant as both NIFTY & SENSEX hit new highs, SENSEX inching towards the 50,000 mark. For CY20 the NIFTY was up by 14.5% while SEXSEX was up by 15.5% for the full year. In between though markets corrected sharply in March 2020 as NIFTY fell to ~7500 while SENSEX dipped below 26000. Since then markets have nearly doubled. In 2020 people across the world showed tremendous resilience and fought the pandemic and we expect 2021 to bring significant relief & hope for everyone.
FII have been buying heavily in Indian equities over the last year. After being net sellers to the tune of Rs.11,410 cr in September 2020, they have been net buyers to the tune of Rs.1.28 lakh cr in the last three months.. They have continued to be net buyers to the tune of Rs.12,974 cr till 12th January 2021. At a time when DIIs have continuously been selling, FIIs have driven up liquidity in the markets.
Equity AUM of domestic MFs reached new highs of Rs.9.5 lakh cr (+17% YoY) in CY20, led by a rise in market indices and marginal increase in equity scheme sales (+2% YoY to Rs 2.33 lakh cr). The MF industry AUM scaled new highs to reach Rs.31 lakh cr in December 2020 (+3.4% MoM and 16.9% YoY), primarily led by inflow of equities, income, and other ETF categories. However December saw the sixth straight month of outflows with investors exiting open-ended equity funds, with the large-cap, multi-cap and value/contra schemes bleeding the most. Cumulative outflows for these categories stood at Rs 9,058 cr in December.
Gold and silver prices in India continued their volatile ride over the last year amid mixed global cues. A rebound in the US dollar from three-year lows along with a surge in 10-year US yields has been weighing on non-interest bearing gold even though expectations build up for further massive US stimulus. Fading political risk in USA, rising global equities and hopes that Covid-19 may under control soon as many countries have rolled out vaccination continue to hit the safe haven appeal and thus the price of gold. Gold prices had surged 25% in 2020 on the back of massive stimulus, and rising safe-haven demand. In August, gold had hit a record high of Rs.56,200. The latest sovereign gold bond issue is currently open for subscription. The issue has been priced at Rs.5,104/unit while those who invest online will get a discount of Rs.50/unit.
Consumer Price Index inflation (CPI) eased to 4.59% in December 2020 as compared to 6.93% in November and 7.35% in December 2019. The rise in prices in October had been the sharpest since May 2014 when the inflation peaked to 7.61%. Retail inflation showed signs of easing in December, led by easing prices of some food items. Food inflation declined to 3.41% in December in 2020, compared to 9.5% in the previous month. At the current level, inflation is back within the Monetary Policy Committee’s target range of 4 (+/-2) % for the first time since March 2020.
Wholesale prices based inflation eased to 1.22% in December from a year earlier, helped mainly by a lower increase in food prices, data released by the Ministry of Commerce and Industry showed. WPI was 1.55% in November 2020, and 2.76% in December 2019. Inflation in food articles inflation contracted 1.11% after rising 3.94% last month while that in fuel and power index contracted 8.72% against a fall of 9.87% in November. Manufactured products inflation rose 4.24% against a 2.97% rise in the previous month.
The Index of Industrial Production (IIP) contracted 1.9% for November 2020. The IIP growth for October has been revised upwards to 4.9% from last month’s provisional estimates of 3.6%. The manufacturing sector witnessed contraction of 1.7% as compared to growth of 3% a year ago, while the mining sector saw contraction of 7.3% in November 2020 as against growth of 1.9% in November 2019. Meanwhile, power generation grew 3.5%.
The IHS Markit Purchasing Managers’ Index (PMI) for manufacturing sector picked up marginally in December to 56.4 from 56.3 a month ago. Indian manufacturing sector continued to point to an economy on the mend, as a supportive demand environment and firms’ efforts to rebuild safety stocks underpinned another sharp rise in production. The IHS Markit India Services Business Activity Index dropped to 52.3 in December from 53.7 in November. Despite a pick-up in factory activity, sluggish demand for services meant the India composite PMI fell to a three-month low of 54.9.
As per Federation of Automobile Dealers Association (FADA), passenger vehicle registrations edged higher by 24% to 2.71 lakh vehicles in December 2020. Commercial vehicles witnessed a downswing of 13.52% to 51,454 units. Two-wheeler registrations totaled 14.24 lakh last month, marking an uptick of 11.88% yoy. Automobile registrations for the first time witnessed year-on-year growth in this financial year. A good crop season, better offers in two-wheeler segment, new launches and prospect of a price increase in January 2021 kept the demand going.
The gross GST revenue collected in the month of December 2020 rose to Rs.1,15,174 cr, an all-time monthly high since the implementation of the new tax regime. This is the third month in a row in the current financial year that the GST revenues have been more than Rs. 1 lakh cr. The December 2020 revenues are significantly higher than last month’s revenues of Rs.1,04.963 cr. CGST is Rs. 21,365 cr, SGST is Rs.27,804 cr, IGST is Rs.57,426 cr (including Rs. 27,050 cr collected on import of goods) and cess is Rs.8,579 cr (including Rs.971 cr collected on import of goods).
According to Ministry of Statistics and Programme Implementation, India’s gross domestic product (GDP) will contract by 7.7% in 2020-21. India’s per capita GDP will fall to Rs 99,155 in 2020-21 — last seen four years ago during 2016-17. With number of active COVID-19 cases falling sharply, India’s economy is expected to clock the fastest growth among Asian peers with higher than 11.5% growth in FY22, according to a report by UBS global research. Fitch Ratings projected India’s medium term growth to slow down to 6.5% from FY23 onward, after the initial rebound to 11% in FY22, as the economy suffers lasting damage from the pandemic.
Finance Minister Nirmala Sitharaman will present the Union Budget 2021 on 1st February 2021, at a time when India’s economy is trying to recover from the COVID pandemic. The FM has promised a “never before” like budget. For the big year after the pandemic, the common man would undoubtedly look up to the budget for various incentives, tax cuts, subsidies, easier credit access and other benefits to cope up with the Covid-19 pandemic. Also expected, the budget will focus on capital spending and growth at the cost of a higher fiscal deficit.
News of vaccines launched across the globe including India has boosted sentiment, even as the US and Europe are dealing with a surge in Covid-19 cases. In India high frequency indicators such as E-way bills, GST, Power generation etc, point to a recovery in the economy though certain areas remain under pressure. Companies that can navigate a challenging period are often well placed to accelerate growth, gain market share and profitability in the subsequent period as they face less competition & thus quality stocks will outperform. The P/E multiple are currently distorted due to the pandemic and should normalize gradually. Corporate earnings have surprised positively and forecasts have started to push higher, sustained recovery in earnings is key to the market sustenance.
As the frontline Indexes hit all-time highs, we feel proper stock picking will be critical. GST collections are consistently clocking above the 1 lakh cr/month & GDP & IIP numbers have consistently improved over the last quarter though low tax collections could be a dampener this year. We are gradually unlocking & I believe that we have already overcome the worst of times & expect things to only improve from here across the globe. We strongly advise investors to continue their SIPs in equity funds & if possible increase the amount. This is a very good buy on dips market & should be bought in a staggered manner. I think we are at the beginning of another bull run & could see positive movements over the next couple of years.
Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 12 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.