The year 2020 will be predominantly known for COVID-19, the global pandemic, 2021 will also start with the lingering effects of the devastation caused by the pandemic. Though investors are high on their expectations, the markets may not perform too well in 2021 too.
Though the vaccination drive against COVID19 is expected to kick off from January 16, it would take more time to clear off the destruction caused by the pandemic. Let’s get to discover more in the further sections.
It was the month of March when coronavirus struck the Indian subcontinent causing nationwide lockdowns and sell-off. At that time, nobody could have thought of the point that Indian equities would increase all-time highs by the end of the year. Despite encountering the worst sell-off in recent times, markets are showcasing a moderate performance improvement.
The high level of pessimism has paved way for some kind of optimism for an economic retrieval and the expense of a vaccine to contain the spread of Covid-19. The standard metrics, the Bombay Stock Exchange’s SENSEX and the National Stock Exchange’s NIFTY are climbing new heights each day. This is in association with various global markets, which have also posed an extraordinary recovery.
If we compare the performance of the Indian stock market with other markets, the former still lags behind in terms of returned accrued.
Returns delivered by indices since Jan. 1, 2020
|KOPSI 200 Index
|SSE Composite Index
Now, here is an outlook for 2021.
A promising kickback since March 2020 has put the Indian stock market again on the high tide. For example, Nifty’s valuations (price-to-earnings ratio) are currently trading above its 5-year average. “Compared to its own history, versus domestic bond yields (as measured by the equity risk premium), as well as against global and emerging market equities, Indian equities are no longer cheap, and only a short distance away from being the most expensive they have ever been.
Apart from this, the introduction of fresh foreign funds has also acted as a catalyst for the burgeoning Indian stock market. This tends to be a favorable thing as global shifts drive more value to Indian markets. Moreover, it leads to the development of an optimistic scenario for investors. Though all these aforementioned factors keep investors excited, companies’ basics need to enhance to match their increasing valuations. The first and foremost factor that is probably to determine the future movement of the market is earnings growth. Second-quarter earnings were much impressive than expected.
On a year-to-date (YTD) benchmark, till December 21, 2020, the S&P BSE Sensex and the Nifty50 have accrued 13.4 percent and 12.8 percent, correspondingly. The one-sided assembly since March has propelled the 12-month forward price-to-earnings (P/E) multiples for the Nifty50 index up by almost 20 percent during the corresponding timeframe, driving Credit Suisse to rule out that Indian equities are no longer low-quality, and very close to becoming the most valuable they have ever been.
The effectiveness of coronavirus vaccine and implementation of the vaccination programme is all set to be among the top-most market catalysts for the year 2021. India lately passed the horrible 1 crore-mark in Covid-19 case count even as the daily cases have decreased meaningfully from the top and recoveries increased to 95.5 lakh, as per Union health ministry records.
The country has been expecting a historical budget for the next financial year and financial minister Smt. Nirmala Sitharaman has signaled such a move. As of now, the government is collating with the industry before the budget and gathering their feedback on a set of fresh challenges they are likely to encounter soon. Right after having her primary pre-budget consultations, the Finance Minister agreed that substantial investment in research and development in medicine, biotechnology, and pharmaceuticals were crucial.
India’s economy has shrunk by 7.5 percent YoY in Q3FY21, following a record 23.9 percent YoY reduction in Q2FY21. From that point, however, it has revealed uncertain signals of recovery. For example, November’s manufacturing PMI stood at 56.3 which was a bit lower than October’s decade extreme value of 58.9 following the ease of lockdown restrictions. In the meantime, GST collection reached Rs 1 trillion for the second successive month signaling the broad level rise in business functions.
As per the International Monetary Fund (IMF), the Indian economy is poised to shrink by 10.3 percent in the ongoing fiscal (FY21) and afterward rise by 8.8 percent in fiscal 2021-2022. A leading stockbroker guesses India’s GDP to contract 11.4 percent in 2020, but grow at 11.6 percent in 2021 and 5 percent in 2022.
Ques- Which stocks are expected to perform better in 2021?
Answer- According to experts, some of the promising stocks that can be expected to give good returns in 2021 are Pharma, Banks and NBFCs, Infrastructure, Consumer Staples, AMC, Life and General Insurance etc.
Ques-At what level, the BSE sensex is expected to touch in 2021?
Answer- Both Sensex and Nifty should provide an annual return of around 7-8 per cent and should go beyond 51,000 and 15,000 levels, correspondingly, by the end of 2021.
Ques-Will the COVID vaccine affect the Indian stock market?
Answer- Yes. For example, Pfizer India stocks skyrocked mid-November, so were BSE Sensex and Nifty, when the pharma company got emergency approval for its COVID-19 vaccine, which they claimed have reached 95 % efficacy level.