Market Update- February 2021

January began on a positive note as India approved emergency use of two Covid-19 vaccines, the UK government announced a US$6.2 bn support package, US President announced US$1.9tn Covid-19 relief plan and Mr Joe Biden took over as new President of USA. Towards the second half of the month, global markets corrected sharply, partly due to concerns over new strains of the Covid-19 virus and fresh lock downs and general profit booking. Indian markets corrected bit more as apprehensions over new taxes in the upcoming budget started to do the rounds. The BSE-30 and Nifty-50 indices closed January down 3.1% and 2.5% for the month. The BSE Midcap index gained 0.8% while the BSE Smallcap250 index was up 0.7%.

With most challenges turning around positively, the most important question in the minds of investors and prospective investors is valuations. With Sensex at 50,000 and Nifty at 15,000, what should we do? Yes, markets are at an all-time high and stocks are not exactly cheap. However, given the possibility of sharp improvement in earnings for the next few years on the back of expansionist government policies, sharply improving demand, low interest rates and ample liquidity; there is room for decent returns from equity markets from a medium to long term perspective. After years, we are witnessing big earnings upgrades and more importantly these upgrades are across sectors and company sizes.

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Market Update- January 2021

2020 will go down in history books as one of the most volatile years for equity investors. Investor sentiment swayed from extreme fear in the first quarter of 2020 and sharp corrections to an optimistic scenario towards the last quarter of 2020. While economic data continued to be challenging, benchmark equity indices almost doubled from their lows in a matter of just 9 months.

In December, Indian markets continued the momentum seen over the last few months with the Nifty being up ~8%. The uptrend was again fuelled by the strong foreign inflows of ~USD 7.3bn, a phenomenon that was witnessed across emerging markets.

The sharp rally in equities has led to apprehensions of its sustainability, particularly given the fact that challenges on the economic front still persist. Also the recent upsurge in commodities; industrial as well as agri, might lead to inflation and subsequent rise in interest rates. However, tailwinds are visible in the form of higher than expected earnings, positive news flow on Covid front and reopening of global economy, ample liquidity and move towards emerging markets from a global perspective. Corrections are expected, though they should be short and swift, with the cautious positioning and low equity allocation acting as a floor to any major correction. The year 2021 should be a positive year for Indian equities, with broader markets expected to do much better than the Nifty. Be positive!

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