If you look at the Nifty returns from the beginning of the year, it is around 14.53%. That is surely impressive in isolation, but it glosses over the sharp COVID correction and the sharper bounce despite concerns over growth and corporate performance. In the chart above, we have plotted all the key benchmark psychological levels being breached.
The Nifty has traversed 6400 points in around 180 sessions i.e. around 35 points rally per sessions. In short, every 29 trading days, the Nifty has gained 1000 points on an average. That gives a quick picture of the gist of this rally. But what drove this rally?
In the first half of 2020, the reasons for the rally are well known. Central banks loosened the monetary levers and then there was the GDP recovery that was evident across the world. Above all, Indian corporate profits came back to report one of the best quarters in Sep-20. But there are 3 factors that have driven the last leg of the rally in the Nifty.
BREXIT deal is a reality
BREXIT is happening on 31 December. EU and the UK will officially part ways on the last day of the year but the good news is that the trade deal has been signed well before that. While BREXIT will still apply in case of services, immigration and cross border movement of money; trade in goods will go on as before. That was the big worry for global financial markets as the UK-EU trade is worth £700 billion annually.
In the absence of a trade deal, all these goods would have been subjected to tariffs throwing currency markets in a state of turmoil. The markets were largely relieved that the worries over trade were behind. Of course, other restrictions will kick in but it was trade that was the primary worry for the currency markets and that is now under control. India being a major trading partner with the UK has reasons to be relieved.
Trump signs the stimulus deal
There was a pall of uncertainty over the US stimulus as Trump had not signed the deal. The Democrats had approved the bill ahead of Christmas and that gave some room for relief. However, the bill still awaited clearance from Trump and that finally came over the week end as Trump sanctioned the $2.3 trillion stimulus package. This package would mean that US households would continue to get their regular payout cheques.
This has a larger implication for India. Even as India was celebrating the prospects of an FTA with UK, the US stimulus deal means that overall spending in the US remains elevated and that is good news for most IT companies that rely on US corporate spending. The stimulus also means that the dollar could weaken in the coming weeks, which is positive at a time when Indian imports have been rising.
Equity fund raising at record levels in 2020
That is the third aspect that is often overlooked. If you thought that year 2020 must have been a tepid year for equity fund raising, think again. It has been the best year ever. A total of Rs178,000cr has already been raised in 2020 via IPOs, FPOs, OFS, QIPs and REIT/INVITs. That is better than the Rs160,000cr raised in 2017. It is a clear signal of equity appetite in the market and this data has surely whetted the appetite of equity investors. For now, it is time to celebrate as the Nifty approaches 14,000 ahead of the end of a tumultuous year!