Equity market review: January 2021

India - Equity market commentary

The Indian equity benchmark index Nifty saw volatility in the month, as investors turned cautious on expectations of negative surprises ahead of Union Budget 2022. Nifty closed 2.7% lower in the month at 13,634.

While the stocks had performed well in the first 25 days of the month, a vicious sell-off was seen in the last week, and most indices ended the month lower. Nifty Auto was the top performer for the month, gaining 5.8%.

Highlights in the month

Sensex zoomed past the 50,000-mark on Jan 21

The Sensex breached the 50,000 mark for the first time ever on January 21, helped by the fastest 5,000 point rally in its history. The journey from 45,000 to 50,000 was completed in 48 days beating the previous 115-day rally from 15,000 to 20,000. The table below shows how much time Sensex has taken to breach various milestones since the index touched the 5,000-mark for the first time ever in February 2006.

Factors that drove the record rally

• Favourable global cues: US President Joe Biden, was sworn into office on January 20th. The markets were buoyed as he had laid out a $1.9 trillion stimulus package proposal to boost the economy and speed up the distribution of vaccines.
• Good corporate earnings: Sensex heavyweights including TCS, Infosys, HDFC Bank, Bajaj Finance (till then) had all reported better-than expected results in the Oct-Dec 20 period. Top companies are expected to see a robust recovery after the impact of Covid-19 affected the numbers in the last two quarters.

Factors that led to consequent fall

After hitting record highs, the indices pulled back lower in the last week as negative foreign flows, uncertainty about the US stimulus and US FOMC (Federal Open Market Committee) added to the volatility. There were also apprehensions about possible negative surprises in the Union Budget such as new surcharges and taxes.

INDmoney Analysis

• Book profit in case of significant gains and avoid lump-sum investments in the stock market. Read our analysis on market valuation here. 
• Stagger your lump sum equity investments into smaller fractions before deploying into this market
• Continue your SIP investments
• Stop large lump sum investments into NIFTY ETFs