Markets 2020: A volatile year of lows and highs

2020 was defined by the Covid-19 pandemic, upending the way we work, the way we live, and the way we interact with people. According to the World Health Organization, as of December 27, there were over 79.2 million reported cases of Covid-19, and the death toll due to the pandemic had crossed 1.75 million.

In India, the reported Covid-19 case count crossed a little over 10 million at the end of December, with the number of deaths below 150,000. The recovery rate of 96.12%, numbering over 9.9 million, has been a saving grace given the relatively large population of the country. The nationwide lockdown imposed in the fourth week of March played a major role in keeping a tab on the Covid-19 cases.

Yet, the lockdown badly hit the economy, which was already witnessing moderation. The Indian equity markets, when seen through the prism of the 30–stock S&P BSE-Sensex, depict this turbulence. On March 24, the Sensex touched the year’s low of 25,638.90 points—a fall of nearly 40% or 16,634 points from 42,273.87—the high point till then on January 20. In terms of trading sessions, this fall came in a matter of just 46 days.

But, after the lockdown was eased and the markets started improving, the Sensex began to climb up, acquiring new life-highs over consecutive weeks and, then days. On December 31, too, the Sensex hit a new life–high of 47,896.97 points. In a matter of 194 trading days, since the low of March 24, the bourses recovered over 86% or 22,258.07 points to reach 47,896.97 points.

In percentage terms, the Sensex’s absolute gain was 15.6%. The other benchmark indices like the Nifty 50 and S&P BSE 500 gained 14.77% and 16.6%, respectively. The S&P BSE MidCap and S&P BSE SmallCap recorded a gain of 19.62% and 31.27% each during 2020.

The boom in the secondary markets boosted the animal spirits in the primary markets too, as 2020 saw 15 initial public offer (IPO) issues mopping up over ₹26,611 crore—a 115.3% rise over ₹12,361 crore raised in 2019 through 16 IPO issues. In contrast, the S&P BSE IPO index managed to record an absolute gain of just 27.9%.

Among the other sectoral indices, the S&P BSE Information Technology gained over 55.7% in 2020, followed by nearly 14% and 13.15% gain in the S&P BSE Auto and S&P BSE Telecom, respectively. Of the 12 key sectoral indices, the S&P BSE PSU, S&P BSE Oil & Gas, and S&P BSE Auto indices posted an absolute decline of 17.29%, 4.19%, and 1.88%, respectively.

Foreign portfolio investors (FPIs) closed the year with total (net) inflows of $14.04 billion, which was lower by $5.37 billion or over 27.6% compared to $19.4 billion in 2019. In rupee terms, 2020 saw total FPI net inflows of well over ₹1.03 lakh crore—down by over 24% or ₹32,843 crore when compared to ₹1.36 lakh crore in 2019.

This annual dip in FPI inflows, however, isn’t worrisome if you look at it on a monthly basis. The steep market fall of March was adequately mirrored in the FPI numbers, as the monthly outflows in equity and debt crossed $8.35 billion (₹61,973 crore) and $8.13 billion (₹60,376 crore), respectively. FPI inflows in equities saw a strong comeback in the last three months of the year at $18.41 billion (₹1.42 lakh crore) as October, November, and December saw monthly inflows of $2.66 billion (₹19,541 crore), $8.13 billion (₹60,358 crore), and $7.62 billion (₹62,016 crore), respectively.

Clearly, 2020 was a year when most predictions for it, made in December 2019, literally went for a toss. “SarsCoV-2 (Covid-19) virus put most, if not all, of these annual predictions to waste,” says Anoop Bhaskar, head of equity at IDFC Mutual Fund. To predict what would happen in the new year, Bhaskar says that one needs to make the key assumption: that the pandemic will not come with any new twist and the roll-out of the vaccination programmes across the world will lead to ‘normalisation’. “Though the new ‘normal’ could be vastly different from the ‘normal’ of 2019, when, few, if any had imagined the havoc such a virus would cause,” Bhaskar adds.

He has company in Jaideep Hansraj, MD & CEO, Kotak Securities, as Hansraj, too, concurs when he argues that 2021 will be marked with hopes of an early roll-out of the Covid-19 vaccine, normalisation of activities, and unperturbed growth recovery. “We expect 2021/FY22 to be a better year with likely strong recovery in both the economy and earnings,” Hansraj says.

Foreseeing the Nifty and Sensex hovering at the respective levels of around 13,500 and 46,000 at the end of 2021, Hansraj predicts that the markets would behave differently in the first half and the second half of 2021. Backed by possibly stronger corporate earnings in the third quarter (ended December 2020), Hansraj expects the Nifty to sail between 14,000 and 15,000. And following the Union budget of 2021 and corporate results for Q4 (ending March 2021), the market could go into a consolidation phase and witness correction.

For 2021, IDFC Mutual Fund’s Bhaskar expects the market movement to be shorter and sharper. In other words, he believes the markets will be deeper on the way down, but overshoot on the way up, a stark contrast to its much more docile nature that was witnessed throughout the 1990s. “The fall during March 2020 lasted less than 35 trading days, erasing between 36% and 43% across the indices—Large, Mid and Small Caps,” he explains.

For now, however, the benchmark indices seem to be deeply engrossed in hitting new life–highs, as January 1 saw the Sensex scale up to 47,980.36 points—an increase of over 87% with addition of over 22,341 points in 195 trading sessions since the low–point of 25,638.9 on March 24. Clearly, as far as the markets are concerned, 2021 has already come loaded with its own platter of excitement.