The year 2020 is going out with a bang, at least for the Indian equity markets, with the benchmark Nifty hitting the never-seen-before 14,000-mark in the morning trade on December 31.
The Nifty's journey this year, like all things in 2020, has been volatile—it has jumped over 86 percent from the level of 7,511 it sunk to in March 2020.
The bull run is likely to continue in 2021 and both the Sensex and the Nifty look poised to scale new peaks.
JPMorgan expects Nifty to cross 15,000 by December 2021, while BNP Paribas sees Sensex at 50,500 in the new year.
Here are the 5 factors that propelled Nifty to Mt 14k:
Regular doses of liquidity by the central banks saved markets across the globe from suffering any major collapse. "Liquidity is one major factor that is responsible for the current rise in equities," JPMorgan said in a note.
While COVID-19 remained a grave danger, markets remained resilient, taking support from government stimulus measures and liquidity infusion.
COVID-19 posed a grave danger to the macroeconomy of the country and it was anticipated that it will take much longer for the economy to recover from the coronavirus induced shock.
However, the pace of the recovery has been better-than-expected. The economy is coming out of the pandemic's deep abyss faster than most predictions and the growth will enter the positive zone in the third quarter of the current financial year, an Reserve Bank of India (RBI) bulletin said.
"...more evidence has been turned in to show that the Indian economy is pulling out of COVID-19's deep abyss and is breaking out amidst winter's lengthening shadows towards a place in the sunlight...it is reflating at a pace that beats most prediction," RBI officials wrote in an article on the 'state of the economy.
Robust FII inflows
As per data available with NSDL, foreign portfolio investors (FPIs) have invested nearly Rs 1 lakh crore in the Indian financial market in the year 2020 so far.
With visible signs of economic recovery, low-interest rates and a weakening dollar index, FPIs have remained bullish on the Indian market.
Healthy corporate earnings
The quarterly earnings of India Inc. came better-than-expected. Sectors like IT and pharma beat estimates while banks and financials fared well during the time of the pandemic.
"Our market buoyancy in the last quarter has been because of the fantastic FPI inflows. The most obvious reason is the corporate earnings which have been better than expected," Vaibhav Sanghavi, co-CEO at Avendus Capital Alternate Strategies, told CNBC-TV18.
Positive reports around the development of the COVID vaccine offered much relief to the market, as it strengthened the belief that things will fall in place soon.
Pfizer, Moderna and Oxford University-AstraZeneca vaccines have been cleared for use and countries across the world have begun vaccinating their citizens against the coronavirus. Several other vaccines are in various phases of trials. India, too, is expected to take a call on the COVID-19 vaccine soon.
The market had reasons to look up even in the gloomy year 2020. However, the road ahead will still depend on how the economy fares in the days to come and how quickly the vaccine becomes available.
Besides, the central bank and the government will need to offer support for some extended time to keep the recovery on track.
"The Centre and state governments need to continue with the counter-cyclical fiscal measures to sustain the momentum of economic growth which went through a rough patch following the outbreak of the coronavirus pandemic," said an RBI article.
"Capital expenditure, which collapsed in H1:2020-21, will need to be scaled up as a priority. Public investment in healthcare, social housing, education and environmental protection is the need of the hour to build a more resilient and inclusive economy," said the RBI on Government Finances 2020-21:A Half-Yearly Review.