The market went through an eventful adventure in the last 1 year from March 23rd, 2020 till now. In this period the market went through a bumpy ride, where indices Sensex and Nifty touched their bottommost level, but government stimulus, major FPI’s inflows, and the rapid increase in economic activities helped these indices to break their record of All-time high levels. So, in this blog, we will be tracking the stock market journey in the last 1 year.
Introduction: Stock Trend Analysis
Journey of the Year 2020 was a travel path from Despair to Hope and then to Jubilation. Just one year back on March 23, 2020, Sensex touched the bottom level of 25,981 points. Then, Sensex had a marvelous journey and has rebounded back very well and has broken all records, and also touched the All-time high level of 52,216 on 16th February 2021. Sensex stood at 50,051 on 23rd March 2021.
If we look at the returns generated in Sensex from its low level of 25,981 points, then it has given the return of almost 93% in one year.
The same bounce-back journey has been witnessed in Nifty 50 also, where NIFTY touched the lower levels of 7,500 last year, and has doubled from that level and is now hovering near the 15,000 mark.
Stock Market Journey since 23rd March 2020
How were the FIIs/FPIs inflows and outflows during this period: Stock Market Trend Analysis
India evolves as a leader among the global emerging economies in the terms of Foreign Inflows and outflows in the last 1 year since March 23, 2020.
Grossly, India remains as a market with Net Inflow. In the last 1 year, FPIs invested $36,474 million in Indian markets.
While Inflows from FPIs in other emerging countries were as follows: China ($10,351 mn) and Brazil ($7,555 mn).
On the other side, if we look at a few cases of the Developed market, they have witnessed a Net Outflow of FPIs in the last 1 year.
Japan had a Net FPI outflow of $20,901 mn. Along with Japan, South Korea, and Taiwan have also faced Net FPI Outflow from their market, their outflow was $16,759 mn and $10,086 mn respectively.
Possibly, On the grounds of high domestic consumption in countries like India, Brazil, and China, these economies may have attracted Foreign Portfolio Investors (FPIs).
Best Performing Emerging Markets (Since March 23, 2020): Indian Stock Market Trend Analysis
From the Index point of view, Korean Index (KOSPI) has outperformed all other emerging economies and has delivered returns of 102.69% from March 23, 2020, till this March 23rd. PE ratio of the KOSPI index was trading at 14.26.
Then comes India, where NIFTY has delivered returns of 94.67% in the same period and another index i.e., SENSEX has generated returns of 92.64% since 23rd March 2020. At the time of fall, the PE ratio of the indices NIFTY & SENSEX were 28.29 & 29.7 respectively. In support of the euphoric situation and strong FPIs Inflows, currently NIFTY is trading at a PE ratio of 40.35 (23rd March 2021)
Taiwan Index (TWSE) has given a return of 81.97% from its level on 23rd March 2020 and therefore becomes the third-best performer among the emerging markets. PE ratio of Taiwan stock market TWSE was 17.54 in March 2020.
Singapore Index (STI) has also generated a decent return of 40.22% in the last 1 year since March 23rd, 2020. PE ratio of STI was hovering around 16.21 in March 2020.
One of the possible reasons for such mesmerizing returns provided by the emerging market indices can be the low base effect, as emerging markets were worst affected by the Covid-19 pandemic in comparison to the developed market.
Performance of Emerging Markets since March 23, 2020
Key Challenges Ahead of Equity Markets: Challenges for Equity Markets
i) Rise in US G-Sec Yields:
US G-Sec 10 year bond yields were also affected by the effect of the Covid-19 Pandemic just like the equity markets were.
This Bond yield went down to 0.33% in March 2020. But now, with increasing normalcy in the economy, Bond Yields have also increased and are currently at 1.6%.
The rise in Bond yields implies the upcoming inflation company and so behaves accordingly, but increasing inflation rate acts negatively for the Stock Markets.
ii) Increasing Inflationary Pressure Negative for Equities: Technical Analysis of Stock Trend
The simple explanation behind how does increasing inflation causes negativity in the equity market is because the rise in inflation will cause the input cost of raw material to go up, which will further impact the Operating Profit Margin of the Company, and to maintain the OPM level, the company passes on the cost to the end-consumers.
Furthermore, as this cost is transferred to the consumers, it results in low sales and low profitability levels for the company and eventually affects the stock prices.
iii) Euphoric Valuation: Indian Stock Market Valuation
Currently, there is a euphoric situation that persists in the stock market, and in case if the companies fail to deliver performance as per the expectation, then it might be a risky situation.
iv) Rising COVID Cases:
A sharp rise in COVID cases has been recorded in the last few weeks, which is believed to be the second wave of Covid-19 in the economy.
Increasing Covid-19 cases can add to the nervousness of investors, which might not be a good signal for the stock market.
The second wave of Covid-19 is much more aggressive than earlier and the market can only hope that vaccination drives go at a faster rate and everything returns to normalcy as soon as possible.
What Should Equity Investors Do? Equity Market India
i) Stay Invested:
The investor should not react immediately to any of the actions of the equity market. One should need to Keep Calm and Stay Invested.
Also, looking at the opportunistic time in the market, one should not react in the form of stepping up Equity Allocation without proper research and study.
ii) For New Investors:
New Investors, those who are entering into the market for the first time can consider Hybrid Products for their Asset Allocation.
iii) Better Options:
Look out for Value Themes such as:
a) Corporate Banks
b) Utilities (Power & Energy)
c) Infrastructure: Great Focus given on Infrastructure by Government in Budget 2021.
Don't invest in a debt-ridden company.
iv) Strictly follow your Asset Allocation.Get more useful articles on various stocks with appropriate stock ratings only on Invest Yadnya. Check out Invest Yadnya for quality content!