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!