Last updated: 03 Mar, 2021 | 01:49 pm
- Key equity market indices in the USA ended higher in February. After registering notable gains in the first 20 days, indices in the US markets fell in the last 10 days of the months.
- In case of European markets too, the rally was sustained during the first 20 days of the month and the gains in the markets were limited in the latter half of the month.
- Japan stock market (Nikkei 225) ended higher by almost 4.8% by end-February 2021 compared with end-January 2021 and had scaled almost 30 year high during the month.
- During the latter half of the month, concerns around inflation outlook following the surge in commodity prices (especially crude oil and metals) and its subsequent impact on rising bond yields have dragged markets lower.
- During the latter half of the month, concerns around inflation outlook following the surge in commodity prices (especially crude oil and metals) and its subsequent impact on rising bond yields have dragged markets lower
India – Equity Market Performance
- The Indian equity benchmark index Nifty saw huge volatility during the month and retreated from record highs. Nifty 50 ended the month with gains of 6.56%.
Positive Market moving News during the month were
(i) Various positive announcements in Union Budget 2021
(ii) Q3 earnings for Nifty firms ahead of estimates
(iii) Economic indicators pointing towards recovery
(iv) Progress of Covid-19 vaccine, and stimulus package in the US
Negative Market moving News during the month were
(i) Sharp rise in Commodity and Crude Oil prices
(ii) Rise in yields
FII INFLOWS – Feb 2021
(i) FIIs have more than 20% ownership in Indian stocks, the single biggest entity after promoters.
(ii) Hence, the inflows by FIIs are a major driving factor behind the ongoing rally in the headline indices.
(iii) FII flows have tapered off from record highs of ₹62,016 crore seen in Dec-20, to ₹25,787 crore in Feb-21.
#IPOwithIND
(i) Primary markets continued to see good traction in the month
(ii) Nureca, IndiGo Paints saw very good listing gains
(iii) Going forward, March is another month with interesting IPOs like Nazara Technologies, Barbeque Nation and Kalyan Jewellers
Analysis
- Swifter than expected economic recovery, mass-vaccination drives upbeat corporate earnings have lent support to the rally in the Indian stock market.
- However, interest rate volatility has impacted investor sentiment. The BEER ratio in India has crossed 1.4, indicating that bonds are relatively more attractive as compared to equities. Empirically when yields have gone up, stock markets trend downwards as future cash flows get discounted at a higher rate, making equities look unattractive
- Surge in cases in specific parts of India has brought in a fear of second round of lockdowns
- In this environment, we advise a up-in-quality approach across both stocks and bonds, along with a focus on valuations and fundamentals.
Equity market Outlook
- Next few months will be particularly action-packed with the below key events:
- Q4 and FY21 earnings data of companies
- Central bank’s stance in RBI MPC to counter inflation and increase in yields
- Wider availability of Vaccine
- Economic data such as GDP, and fiscal deficit
- An influx of liquidity in the global markets has caused a sharp rebound rally from the March lows of 2020. The US Fed, RBI, and a lot of other central banks around the world have pumped money into the system. Due to high valuations, any negative news is leading to a sharp fall in the index. The markets could remain volatile in the near-term period.
- Invest in equities in a staggered manner. Stagger your lump sum equity investments into smaller fractions before deploying into this market
- Stick to large caps and index stocks that are best suited to navigate the volatility.
- Keep your SIP’s running