Market plots V-shaped recovery, 10 events that moved Dalal Street

From forming lifetime highs at the beginning of the year to the flash crash in March and back to record highs at the tail end, 2020 turned out to be the year of highest of highs and lowest of lows.

December 23, 2020 / 10:45 AM IST

From lifetime highs at the beginning of the year to the flash crash in March and back to record highs in the last few months—2020 has been a year of highest highs and lowest lows. 

In the first half of the year, the market struggled as the coronavirus tore through the world and the economy was pounded. The second half was all about containing the virus with unprecedented stimulus support and a push for a viable vaccine. 

These are events that moved the D-Street the most in the Year of COVID. Take a look:

Union Budget

The second budget of Narendra Modi-led NDA government's second term failed to impress Dalal Street despite being built around themes such as "aspirational India", "economic development" and promising a "caring society". 


In her speech, Finance Minister Nirmala Sitharaman enumerated 16 initiatives aimed at doubling farmer income and also fronted several measures to promote infrastructure development and social welfare. Other measures included simplification of taxes and leveraging technology for better governance. 

The equity benchmarks Sensex and Nifty crashed over 2.5 percent each on the budget day.

While some appreciated the government's measure to spur investment in a slowing economy, many thought it failed to address the other side of the equation—consumption. Some of the steps announced in the budget didn't sit well with sectors such as fertilisers, tobacco, insurance and some parts of capital goods space.

As a result, the equity benchmarks Sensex and Nifty crashed over 2.5 percent each on the budget day. Barring the Nifty IT index, all the sectoral indices ended in the red. The broader market also performed in line with the equity benchmarks, with S&P BSE midcap and smallcap indices dropping around 2.2 percent each. 

Coronavirus outbreak 

India reported its first COVID-19 case 327 days ago on January 30 in Kerala, while the first death was reported on March 10 in Karnataka. 

In the early days of the coronavirus outbreak, it was seen as another seasonal flu, on the lines of SARS 2003, which had a local impact.

The view drastically changed once the highly contagious virus reached Europe and the United States. In a matter of a month, the world equity market corrected by a third. The Sensex and the Nifty collapsed by 40 percent and mid and smallcaps tanked 50 percent and 60 percent, respectively.

The flash crash of March was driven by the worst enemy of the financial markets, uncertainty.

When will the country reopen? What impact will the lockdown have on the economy? How will the virus be contained—were some of the questions that were swirling around and weighed on the D-Street.

Lockdown and 'unlocking'

In an address to the nation, Prime Minister Narendra Modi announced a sudden nationwide lockdown on March 24 to break the chain of the infection. Initially announced for 21 days, the lockdown continued until the end of May, after which the first phase of rolling back the restrictions, or "unlocking" as it was called, began and some business activities were allowed. 

In successive phases of "unlocking", industries, restaurants, shopping malls and educational institutes were allowed to reopen, though these relaxations did not apply to areas with a high prevalence of infections.

Even though the market had recovered significantly since the March lows, the 2020 bull run began only after the "unlocking" of the economy. 

 RBI policy

For calendar 2020, the Reserve Bank of India's monetary policy committee (MPC) reduced the repo rate, the rate at which the central bank lends money to commercial banks, by 115 basis point to 4 percent from 5.15 percent. The reverse repo rate, the rate at which RBI borrows from banks, was reduced by 155 basis points to 3.35 percent from 4.9 percent. The RBI also maintained an accommodative stance throughout the year, implying more rate cuts in the future if the need arose to shore up the economy.

Key rates, however, have been left unchanged in the last three MPC meetings.

In late March, the central bank also announced that lenders could give a moratorium of three months on term loans, outstanding as on March 1, 2020. Later, the moratorium was extended to August 31 to give borrowers more time to pay EMIs amid the economic fallout of the nationwide lockdown.

Other key initiatives taken by the RBI included a cut in Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR), deferment of Net Stable Funding Ratio (NSFR) and a 3-month moratorium on working capital interest.

As a result, the central bank injected liquidity equivalent to almost 3.2 percent of the GDP, on top of the Rs 2.8 lakh crore of liquidity it had added since February 2020.

The policy measures were largely cheered by market participants as well as experts.

Gold's golden run

Gold, as an asset class, has had one of its best years in recent memory. The yellow metal price has risen over 20 percent year-to-date, though most gains came earlier in the year following the March crash in equity markets.

While optimism on the development of COVID-19 vaccines did take away some of its shine, the yellow metal has managed to hold on to most of its gains. Consequently, gold has performed much better than other asset classes, such as equity and oil. In 2020, so far, the Nifty is up 10.6 percent, while crude oil WTI Futures is deep into the negative territory at -23.4 percent.

Oil crash

US oil prices crashed to sub-zero levels for the first time on April 20 as demand for the commodity collapsed due to lockdowns around the world.

Not just oil but the energy markets, in general, took a huge hit amid lockdown as it restricted movement of people and goods, dealing a blow to the demand for transport fuels.

The OPEC-Russia price war also weighed on crude. In March, a price war ensued following the dramatic collapse of an alliance between Russia and the OPEC cartel, a pact that had underpinned world oil markets for three years.

US oil prices crashed to sub-zero levels for the first time on April 20 as demand for the commodity collapsed due to lockdowns around the world.

The Mexican standoff between Saudi Arabia and the Russians wiped off more than 50 percent of oil's value, sending shockwaves across the financial world.

Following the crash, the Nifty gave up about 3 percent, the second-highest single-day fall in what was otherwise the best month for Indian markets in 2020 as the index surged more than 14.6 percent month-on-month in April.

Stimulus packages 

The US lawmakers on December 22 approved a $900-billion stimulus package, finally delivering on the promise to help businesses and families struggling amid the COVID-19 pandemic.

The latest grants are a part of the $2.3 billion "coronabus" bill.

In March, US Congress had approved a $2.2 trillion economic stimulus bill under the CARES Act.

Back home, Nirmala Sitharaman in November announced a new stimulus package as part of the "Atmanirbhar Bharat 3.0" worth Rs 2.65 lakh crore. 

With this, the Centre and the RBI have together provided a fiscal stimulus of Rs 29.87 lakh crore for COVID-19 relief. The combined package equates to about 15 percent of India's GDP, she said.

The liquidity created by these stimulus packages is one of the reasons global markets have been able to plot a V-shaped recovery as investors chase beaten-down stocks and a host of new players enter the financial markets.

US presidential election

Though Democrat Party candidate Joe Biden's win in the 59th presidential election in the US will not have much bearing on the Indian markets in the long term, it has instilled confidence among investors by reducing policy uncertainty in the near term. 

Consequently, Indian markets saw record foreign inflows in November which increased significantly following Biden's victory. 

"The FIIs have been pumping in money into the emerging markets ever since they got clarity over the US election outcome. This has led to strong inflows into Indian markets as well. Going ahead, the intensity of inflows in India would depend on several factors such as policy changes in the US and earnings growth in India. Having said that, we believe emerging markets like India would remain a preferred choice for FIIs," Ajit Mishra, VP, Research at Religare Broking told Moneycontrol.

Following Biden's victory, the Nifty closed in the green in 10 out of the 14 remaining sessions in November, though developments on the vaccine front and improving macro data also added to the cheer.

COVID-19 vaccine

The global race for the COVID-19 vaccine seems to be coming to a pivotal end. Several pharmaceutical companies, over the last two months, have announced critical breakthroughs and orders have started to pile up.

The United Kingdom was the first country to begin vaccinating its population after it commissioned 40 million doses of the vaccine developed by Pfizer and BioNTech. The US and several other countries have began to administer jabs to their populations. The US's drug regulator has also given emergency approval to a second vaccine, the one developed by Moderna. 

The US and Europe have either secured or preordered vaccines from mostly Pfizer and BioNTech, Oxford-AstraZeneca or Moderna, and several others in the pipeline as the number of doses requested for mass inoculation surpassed billions.

In India, Pfizer and Serum Institute of India have applied for emergency use of their COVID-19 vaccine candidates. There were also reports of Bharat Biotech seeking emergency approval for its Covaxin. Meanwhile, the central government has readied the blueprint of the mega vaccination drive. During the first phase, nearly 30 crore people will receive the jab.

The global equity market rejoiced at the potential of an earlier-than-expected vaccine roll-out. Back home, the vaccine cheer coupled with the continual fall in new cases helped Nifty and Sensex scale new highs almost daily.

COVID new strain 

Just as the world was heaving a sigh of relief with COVID-19 vaccine being cleared for use, a new strain of the coronavirus, said to be up to 70 percent more virulent, was discovered in Britain. 

The new variant, which the UK scientists have named "VUI – 202012/01" forced several countries, including India, to ban travel with the UK.

Just when the world was heaving a sigh of relief after the COVID-19 vaccine breakthrough, a new coronavirus strain, said to be more virulent, has sprung new worries.

According to a BBC report, the variant was first detected in September in the United Kingdom. In November, around a quarter of cases in London were linked to it. Apart from the UK, Italy, France and Australia are the other countries where the new strain has been found. 

So far, no evidence suggests that the new variant causes severe COVID-19 infections.

Following the reports of a new strain, Indian equities witnessed a sharp sell-off on December 21, with most sectors reeling under strong pressure.

Both the Sensex and the Nifty cracked over 3 percent but the carnage was worse in the broader markets as BSE midcap and smallcap indices plummeted 4.14 percent and 4.57 percent, respectively.

The sharp selloff dealt a strong blow to investor's wealth as the overall market capitalisation of BSE-listed firms dropped to Rs 178.75 lakh crore against Rs 185.39 lakh crore in the previous session, making investors poorer by Rs 6.64 lakh crore in a single day.
Suyash Maheshwari
first published: Dec 23, 2020 07:41 am

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