Nifty @13,000: Lofty heights but not done yet!

Let us check what exactly has triggered the rally in Nifty?

November 24, 2020 1:38 IST | India Infoline News Service
It was almost axiomatic that if Biden was voted to power the global markets would respond positively. But the intensity of the rally was beyond all expectations; and that too in such a short time period.

Data Source: NSE (# Intraday Nifty Level)

That is not just a one-way market journey but also mindboggling 12% returns on the Nifty in just about 15 trading sessions. What exactly has triggered this kind of rally in the Nifty?

A bit of politics and a lot of economics

The real turnaround in sentiments on the Nifty began towards the end of October when the first signals of Biden getting the better of Trump in the US elections emerged. But the story that sustained the Nifty for 15 trading sessions was only partly about politics but substantially about economics.

a) For starters, the Biden election did provide the impetus. Trump had pushed US-China relations to the brink and that had put nearly 40% of the world economy at loggerheads. Global markets presume that once Biden takes charge in early Jan-21, the geopolitical risk for markets should substantially reduce. That surely was the trigger.

b) At a macro level, the Stimulus 3.0 was a big boost to markets. It was always a toss-up considering that fiscal deficit had already breached full year target in first 6 months. But, Biden euphoria and better than expected performance in Bihar polls meant that the government was sticking to its reforms process. That triggered Stimulus 3.0 and warmed the markets.

c) Macros are finally getting back to pre-COVID levels and that is the good news. IIP and Core sector data are indicating that the Indian economy is back to mild growth and things should only get better. Of course, the second coming of COVID is a worry but the world is much closer to a vaccine than ever before and that is the saving grace.

d) Last, but not the least, it is the corporate results in Q2 that really proved to be the difference. Even as sales revenues for the quarter were lower by 5% yoy, the net profits were up by 150% despite the tax disadvantage. Clearly, companies have cut costs and tightened the ship which is evident in the numbers.

While Biden election was the trigger, the real boost to the markets came from very specific macro and micro triggers in India. The certificate of appreciation came from the FIIs, which infused Rs55,000cr in 15 trading sessions of Nov-20 as compared to Rs35,500cr in the first 7 months of the fiscal. That, perhaps, best sums up the November story.

Which sectors triggered this rally?

You would normally expect the heavyweights to drive this kind of frenetic rally. Here is a quick look how some of the heavyweight sectors influenced Nifty returns in Nov-20.

Index Nov-20 Returns Returns versus Nifty Weight in Nifty
Financial Services 20.82% Outperformer 35.52%
Metals 19.84% Outperformer 2.20%
Automobiles 12.63% Outperformer 5.50%
Nifty Benchmark 11.99% Benchmark
Oil & Gas 7.98% Underperformer 14.99%
FMCG Sector 7.93% Underperformer 11.56%
Information Technology 5.21% Underperformer 17.16%
Pharmaceuticals 4.39% Underperformer 3.75%
Data Source: NSE

We have considered 7 sectors that account for over 90% of the overall Nifty weight. Among the heavy sectors, the rally has almost entirely belonged to the financial services sector with the HDFC twins as well as other private banks and large NBFCs accounting for most of the gains. Oil & gas underperformed the index as Reliance continued to remain under pressure.

Similarly, heavy sectors like FMCG and IT which had led the post-March rally have also been relatively subdued in November. In short, the rally has clearly belonged to the financials.

That brings to the million dollar question; will this frenetic rally sustain and is this rally different? As Sir John Templeton said it best, “Of all the arguments in the stock markets, the 4  most dangerous words are; this time it’s different”.

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