Stock Market Analysis Today – Key positives & considerations for stock market to look out in 2021

The Indian equity markets witnessed huge volatility in 2020 driven by the COVID-19 pandemic, but the benchmarks – Sensex and Nifty – rebounded to end the year near record-high levels.

Global investors have been attracted towards Indian equities as the FIIs continued to remain net buyers for 9 out of 11 years since 2010. Analysts expect such positive momentum to continue given the favourable economic outlook and expectation of GDP growth of more than 8.5 percent going into the next financial year.

“With fixed income yields at record lows and central banks continuing to look for ways to curtail risks, equity risk premia still has room to fall, which is likely to add to performance over the medium term. As economies stabilise further after the pandemic related shock, investors looking to preserve real wealth and meet long-term obligations will be highly incentivised to invest in equities,” ICICI Securities said in a report.

The brokerage house believes that the markets are poised to remain strong, driven by higher flows and liquidity. With the indices at an all-time high, it expects more QIPs to shore up balance sheet and IPOs, OFS, blocks to provide liquidity to the investors.

Over the past two years, Environmental, Social, and Corporate Governance (ESG) factors have raced to the top of the agenda for companies and investors likewise, ICICI Securities noted.

Amidst rising concerns over environmental sustainability and the pandemic, it expects to witness accelerated sustainability trends going into 2021 and as a result, renewables and companies with high ESG score are expected to successfully tap the markets.

ICICI Securities has listed key positives and considerations for the markets to look out going ahead.

Positives

Expectation of low interest rate environment: Central banks intending to keep interest rates low for the first half of 2021 is the key catalyst for equity markets to continue to outperform.

Covid-19 vaccination drive: With the onset of a mass-vaccination drive against the pandemic, the bull market’s record streak has much room to grow next year.

Lower volatility: After a year of massive volatility, the economic outlook has turned extremely positive going into the next year. Expect less business uncertainty and transparency with new presidency in the US. Emerging markets should be the key beneficiary with the massive runway for capital deployment.

Considerations

Headline inflation risk: Surge in the inflation given the liquidity boost and possibility of interest rates hikes in 2H2021

Logistical challenges on vaccination: The logistical challenges on the vaccines and new strain of COVID-19 could lead to a slower than expected roll-out of the vaccination drive.

Slower than expected recovery: The COVID-19 crisis pushed the global economy into its deepest recession since World War II. Though the rebound has been equally agile, a slower than expected recovery in the coming quarters could dampen the investor enthusiasm.