The bulls retained their hold of Dalal Street for the fifth consecutive year in 2020, with the Nifty gaining 15 percent, though the index failed to hold on to the psychologically important 14,000-mark to end flat on December 31.
As the coronavirus tore through the world, lives were upended and economies wrecked. The Indian market, which tanked in the last week of March as the country went into lockdown to curb the virus spread, staged a remarkable comeback. In fact, 2020 has been the Nifty’s best year since 2017 when the index gained 29 percent.
The market corrected around 40 percent during February-March from its peak in January but after hitting a four-year low on March 24, it gradually recovered the losses and climbed new peaks in December. The recovery from the March crash stood at 84 percent.
"The year 2020 was a rollercoaster ride, to say the least. The stock markets in 2020 witnessed a fascinating trend. As the market corrected significantly, retail investors started buying quality stocks, realising the value in these companies. Also, lockdown resulted in more people taking to the equity markets and learning nuances. This shift has significant long-term implications as more and more participants will be seen in 2021," B Gopkumar, MD & CEO at Axis Securities told Moneycontrol.
Liquidity, fall in the dollar index, improving economic data points, better-than-expected September quarter earnings with first Nifty EPS upgrade after 23 quarters and vaccine progress, all worked in favour of Indian markets.
Foreign institutional investors net bought more than Rs 1.6 lakh crore of Indian equities in 2020, including a record monthly inflow of over Rs 70,000 crore in November after the US elections.
Domestic institutional investors, on the other side, turned net sellers for the year, which largely could be due to profit booking with the feeling that the market might have run ahead of fundamentals. They net sold Rs 35,405 crore worth of shares in 2020, though they did record monthly buying (Rs 55,595 crore) in March.
The BSE Sensex, which gained 5.11 points on December 31 to end at 47,751.33, surged 15.8 percent in 2020. The Nifty50 was up 14.9 percent during the year and ended at 13,981.8, losing 0.20 point on the final day of the year. Both indices gained 8 percent in December.
What to expect in 2021
"2021 will be a year of growth. We expect the GDP growth rate in 2021 to be closer to double digits and earnings growth to be over 30 percent for India Inc. Union Budget in 2021 could also be a blockbuster. Putting these perspectives together, we are likely to see a robust 2021," Gopkumar said.
Experts expect the Nifty at 15,000 and Sensex at 50,000 in 2021, though there could be some correction in initial months after the sharp rally of last nine months.
"For 2021, I expect double-digit return in the Nifty and more importantly a much broader market participation led by economy and earnings recovery, coupled with continuation of liquidity flows and favourable government policies. But there could be intermediate corrections and hurdles in-between, which I believe is healthy for the market," Sanjeev Hota, Head of Research at Sharekhan by BNP Paribas said.
Among sectors, the Nifty IT (up 55 percent) and pharma (up 59 percent) were the biggest gainers, while auto, FMCG, infra and metal gained 11-15 percent. However, banks underperformed with 2.5 percent loss for the year as private bank index was down nearly 3 percent and PSU bank 30 percent.
The advance-decline ratio in the Nifty was in favour of the bulls as top 28 stocks closed the year with double- digit gains.
Divis Laboratories, added to the Nifty towards the end of September, topped the list with 106 percent gains, followed by Dr Reddy's Laboratories, Cipla, Infosys, HCL Technologies, Wipro, Asian Paints and JSW Steel, which gained 43-80 percent.
IndusInd Bank, Coal India, ONGC, IOC, BPCL, UPL, Axis Bank, SBI, NTPC and ITC were the year’s biggest losers, falling 10-40 percent.
After underperforming in last two years, the broader markets managed to march ahead of the benchmarks. The Nifty midcap and smallcap indices rose 21 percent each, on expectations of a broad-based recovery in earnings and the economy returning to normal in 2021.
"We believe that small and midcap space will be back in favour in 2021. One of the most distinguishing characteristics of companies in this segment is higher growth rates than larger peers," Dhiraj Relli, MD & CEO at HDFC Securities said.
Investors always flocked to this category in anticipation of higher returns, given their potential to report increased profitability and gains in market share, he said
The COVID-19 had created huge opportunities for several sectors and the steps taken by the government to boost manufacturing along with monetary measures by the RBI can help India emerge as a strong country, experts said.
"It (COVID-19 outbreak) has created enormous opportunities for pharmaceutical and chemical companies, the technology industry, for IT offshoring, remotely operating industries. Overall, the Emerging Markets (EM) are going to do better in the coming year. To that extent, India, being part of the EM pack, would also benefit," said Relli.