Gold, crypto, equities dazzled in 2020. Will they repeat the feat in 2021 too?

On the other hand, low-interest rates kept bond yields under pressure globally.

As per a note from William O'Neil India Private Limited, gold price touched a peak level of Rs 57,000 per 10 grams in India in 2020 primarily due to low interest rates, stimulus programs and a weak US dollar amid a global pandemic.

During 2020, bond yield remained under pressure as pandemic drove investors into safe assets.

In the US, long-term interest rates have undergone a significant structural shift that is likely to keep yields at extremely low levels in the near future. In India, the bond yield dropped below 6 percent in December from above 6.5 percent at the start of 2020, William O'Neil pointed out.

The year 2020 also witnessed strong gains in cryptocurrency. William O'Neil highlighted that the world's best-known cryptocurrency, Bitcoin, is hitting its highest levels in nearly three years.

The road ahead

US Fed is pumping record money in the economy followed by other central banks across Europe and Japan, which has created massive liquidity in the system.

Piyush Nagda, Head – Investment Products, Prabhudas Lilladher, pointed out since bond yields in many countries are very low between -1 percent to 1 percent, a lot of this money is chasing equity and the alternative asset classes as investors are scrambling for higher yields.

India is one of the favorite emerging markets among foreign investors, is seeing a strong flow of money into its equity market.

Many top companies have shown remarkable resilience in bad times and are looking forward to earnings growth supported by a revival in consumer demand in key sectors and positive steps taken by the government during the pandemic.

"Bringing together all the above points, positive news around vaccine and optimism around upcoming Budget, we are positive on Indian equities, it will keep shining in 2021," said Nagda.

"On the front of gold and other precious metals, the positive vaccine development could keep them subdued in 2021 and they will remain rangebound," said Nagda.

Cryptocurrencies have made a comeback and high-risk takers are allocating money to them.

Nagda believes increased digitisation and changing dynamics around traditional currencies and asset classes are reshaping the global economy and cryptos as digital currencies could become a great alternative in the future.

However, as they are not regulated currently, commenting on it on a near-term basis is difficult, Nagda said.

Nagda also emphasised the importance of disciplined asset allocation.

"With all the optimism around, any bad news on the COVID front or geopolitical front can spoil the party. Investors will have to be watchful and follow a disciplined asset allocation approach based on their risk appetite," he said.

Gaurav Garg, Head of Research at CapitalVia Global Research Limited-Investment Advisor believes bond yields may remain at lower levels due to the monetary easing by the central banks across the world.

Inflation seems to be less concerning as of now when compared to economic recovery. This approach of monetary easing is expected to exist for the foreseeable future looking at the stance of the US Fed, at least till mid-2022 to 2023, Garg pointed out.

About gold, Garg believes gold prices may spike in the first half of 2021 on the back of expectations over additional fiscal stimulus from the US government, weaker US dollar and improving consumer demand from India and China.

However, the continued optimism on the economic recovery and surging risk assets could limit its rise next year.

Rising inflation, credit expansion and government spending to tackle the economic fallout of the pandemic might support gold prices in the near-term which provides room for gold prices to move higher, Garg said.

Bulls kept control in the calendar year 2020 with market benchmarks Sensex and Nifty gaining 15.75 percent and 14.90 percent, respectively.

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.

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.

Garg expects a double-digit rally in Nifty by the end of 2021 on the back of increased retail participation, favorable policies by the government, demand resumption and fresh foreign inflows.

However, Indian market valuations seem expensive as of now. Therefore, there are possibilities for the benchmark to consolidate.

The space of cryptocurrency looks bright for the long-term.

"Google searches for bitcoin, which is one of the cryptocurrencies, are up around 750 percent year over year. There is increased awareness among investors now. The blockchain technology that bitcoin and altcoins are built on is just beginning to transform many industries. The coming transformation might be massive, and this space is expected to evolve further from medium to long-term," Garg said.

The Indian rupee, in Garg's views, is expected to continue upswing in the next calendar year over expectations on greater foreign inflows and fiscal stimulus package by the Finance Ministry which would help revive the economy.

"The US dollar’s downtrend is likely to continue further aiding the recovery in the Indian rupee. However, the recovery in rupee might witness pressure due to rising oil prices and investors' confidence in India's ability to manage the balance of payments," Garg said.

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