The global COVID-19 situation, rollout of vaccines, geopolitical trends, Union Budget and economic recovery would be the major factors driving investor sentiments in 2021 after a tumultuous year which saw both 'the worst of times and the best of times' for the stock market, said analysts.
What a year 2020 turned out to be!
From witnessing gigantic losses to record-shattering gains, investors went on a roller-coaster ride amid the coronavirus pandemic and massive stimulus measures.
Markets closed last year with remarkable gains of around 16 per cent, but will the winning ways continue in 2021 as well? According to Hemant Kanawala, Head - Equity, Kotak Mahindra Life Insurance, "If 2020 was a year of COVID infection, lockdown and recession, 2021 will be a year of vaccination, reopening and recovery." Analysts are optimistic about the road ahead for the equity market but added that the quantum of rise would depend on multiple factors.
Markets may see profit-taking ahead followed by consolidation initially but analysts expect the prevailing uptrend to continue in 2021 as long as there is no resurgence of COVID-19 cases and consequent lockdown.
Another important factor would be the geopolitical situation with a new US president set to take charge, they added.
Dalal Street wrapped up 2020 on a bullish note, with the Sensex gaining 15.7 per cent during the year marked with panic selling as well as record-breaking peaks.
"Markets have been continuously making newer highs led by strong liquidity flow, supportive global cues, positive news on progress of COVID vaccines and US stimulus announcement. However, we feel some consolidation at the start cannot be ruled out, citing stretched valuations across the board.
"Nonetheless, we would see a decent performance in the markets, given overwhelming liquidity support from central banks, which is expected to continue in 2021 as well. On the domestic front, we believe improving India's fiscal position and NPA situation would boost sentiments. Besides, the Union Budget and earnings are crucial events for investors...," said Ajit Mishra, VP Research, Religare Broking.
Considering the present scenario, Sensex and Nifty have the potential to test 48,000-plus and 14,500-plus zones this year, he added.
Mishra added that markets are trading at expensive valuations after the phenomenal recovery in the last nine months, so there could be profit-taking ahead followed by consolidation initially and earnings recovery would decide the future course of equities.
Vinod Nair, Head of Research at Geojit Financial Services said, "Despite the havoc created by the COVID-19 pandemic, the economy is expected to recover in 2021 giving boost to the equity markets in addition to upgrades in corporate earnings." "We expect Sensex to touch 51,500 level, while Nifty is expected to cross 15,100 mark due to enough liquidity and better than expected recovery in businesses," said Vinit Bolinjkar, Head of Research, Ventura Securities.
According to analysts, the prospect of vaccines, additional stimulus package by developed countries and gradual recovery in the global economy will drive the domestic market.
"CY21 will be marked with hopes of early rollout of COVID-19 vaccine, normalisation of activities and unperturbed growth recovery. We expect CY21/FY22 to be a better year with likely strong recovery in both the economy and earnings," said Jaideep Hansraj, MD & CEO, Kotak Securities.
Going ahead, the key driver for markets would be revival in earnings to sustain these premium valuations, Mishra said, adding that the government has the opportunity to set the roadmap for sustained growth in the Union Budget early this year.
"Improvement in trade relations between India and the US under the new administration can play a critical role in expediting the recovery," Mishra added.
Vaccine optimism and liquidity supporting measures infused life into the equity market which had faced turbulent trading sessions in March due to concerns related to the pandemic and its impact on the economy.
March proved to be dreadful for Dalal Street, with the Sensex plunging a massive 8,828.8 points or 23 per cent during the month.
"As long as we don't have a resurgence of COVID and consequent lockdown, the situation should improve quickly and materially," Bolinjkar added.
During the entire 2020, the 30-share BSE Sensex made monthly gains in seven while closing with losses in five of them.
"Continuity of global liquidity and how does the geopolitical situation change with the new US president can drive global sentiments," said Santosh Kumar Singh, Head of Research at Motilal Oswal Asset Management Company.
Markets witnessed volatile trends during the year, with the BSE benchmark crashing to its one-year low of 25,638.9 on March 24, only to roar back to its record high of 47,896.97 on the last day of trade.
"We have a target of 14,500 for Nifty-50 for December 2021, with an upward bias based on the optimistic economic development seen in the latest data," according to Vinod Nair, Head of Research at Geojit Financial Services.
Sentiment will also depend upon investment trend of foreign institutional investors, movement in rupee and Brent crude.
"All-in-all, we believe the market will run up ahead of, and in anticipation of, an ensuing economic recovery. If 2020 was largely about survival, both health-wise and finance-wise, it was also the most opportune time to tweak and tighten portfolios.
"In our reckoning, the best for the markets lies immediately ahead," said Amar Ambani, Senior President and Head of Research - Institutional Equities, Yes Securities, On the market's Budget wishlist, Mishra said market participants would keenly watch progress and plans on the disinvestment process by the government.
Further, there would be wide expectations that some of the sectors like airline, travel and tourism, hotels and multiplexes would get some sort of relief package.
"Additionally, higher spending in social sectors like rural, infrastructure and agriculture would be taken positively by the markets," he added.
On sectors to watch out for in 2021, Mishra said banking would be a key sector to watch out for after severe underperformance. The sector has made a comeback in a big way recently, led by strong results from some of the large private and public sector lenders.
"We also like telecom as we believe the worst is over for the sector as lingering tension of pricing wars and the decision on AGR dues has subsided to some extent.
"The long-term growth story remains promising for the industry, thanks to increase in digital penetration, which has further accelerated post the pandemic and consistent rise in smartphone users," he said.