March 2021 was reminiscent of a lacklustre market where there was absence of buying at higher psychological levels. That is the reason, 15,000 for Nifty and 50,000 for Sensex remained major resistance levels through the month.
Foreign portfolio investors (FPIs) were net sellers on most days even as Mar-21 ended with marginal net infusion of Rs1,245cr. However, domestic institutions infused Rs5,205cr. It was largely led by Rs8,200cr infused by DFIS in the last 4 days of the month, which is a normal practice to avoid damage to their year-end NAVs. The one big positive in Mar-21 was that the FOMC reiterated its commitment to near-zero interest rates. However, if one looks at the US bond yields, it appears like the markets were not exactly convinced.
COVID resurgence, bond yields and Suez Canal blockade
The month of Feb-21 had begun with enthusiasm but closed with scepticism. That appears to be carried forward to the month of March. However, Mar-21 had different triggers.
- There was a sharp resurgence in COVID afflictions in India, in what is now called the Second Wave. The worst hit was the commercial hub of Maharashtra, which accounted for more than 50% of the cases. That remains the immediate risk factor.
- Despite the FOMC assuring that rates would remain close to 0% till the end of 2023, the bond markets were far from convinced. Bond yields in the US rose to 1.758% and appeared to defy cues from the Fed statements and CME Fedwatch expectations.
- There are some concerns on high frequency macro data points. The core sector and IIP numbers are facing a lot of resistance and that poses a risk for fourth quarter GDP numbers. A possible second lockdown is only worsening sentiments.
- IPO listings were a major disappointment in the second half of February. While some of the IPOs did list below their issue price, many of the earlier issues also fell below their issue price. Markets appeared apprehensive about a degree of froth in IPO markets.
- A rather innocuous Taiwanese ship got stuck in the busy Suez Canal, virtually blocking the conduit that transits over 10% of world trade. While the problem was resolved in a week, the congestions is likely to last for another couple of weeks and the trade impact could last for 6 months. That was a major overhang in the second half of March.
Sectors that outperformed Nifty in Mar-21
The Nifty ended Mar-21 with +1.11 returns, compared to +6.56% returns in Feb-21. Through the month, the Nifty struggled to break above the 15,000 mark. However, the Nifty did slightly better than the mid cap index which gave marginally negative returns. FPI flows were tepid but domestic funds infused Rs8,200cr in the last few days to keep NAVs buoyant.
The 3 big stars of March-21 were FMCG, IT and Metals, in that order. Interestingly, metal stocks have been on the radar with big demand growth expected. During March, there was a clear shift to defensives as most investors preferred safe haven sectors like FMCG, IT and, possibly, pharma. All these sectors managed to outperform the Nifty by a decent margin.
Pharma and consumer durables were also outperformers in March, but to a lesser extent. The broad market story was that the large cap index had managed to outperform the mid-cap and the small cap indices.
Rate sensitives underperformed in March 2021
It is not surprising that rate sensitives like private banks, PSU banks, realty and auto stocks yielded negative returns in Mar-21. With US bond yields rising and Indian benchmark also crossing 6.32%, there was a fear that cost of funds could go up and bond prices could drop. For PSU banks, there was also a concern that the new SEBI regulations on AT-1 bonds could be a disincentive for mutual funds to invest in these AT-1 and Tier-2 bonds. That explains why PSU banks were the worst hit.
Big story will be Q4 corporate results.
March quarter GDP is still some time away so the immediate focus will be on the cues like global bond yields, US infrastructure package etc. But a major focus would now shift to the fourth quarter results. The third quarter was not as encouraging as the first and the second quarters and the market would hope for better corporate performance on growth and margin parameters. That could decide the trajectory for markets in April 2021.