After a3.51% bounce in October, Nifty was expecting a flat to positive November. But what transpired was beyond all expectations. The US election ended in a decisive victory for Biden and the euphoria showed in the markets. The 11.39% returns in the Nifty in Nov-20 was the best monthly return since 14.4% returns in Apr-20. But, the November rally came after the Nifty had rallied 50% from the lows of April; making it unique. Secondly, as the chart above shows, the mid cap index showed an equally decisive uptrend; even beating Nifty returns by 800 bps. In short, November 2020 was a month when bullswere all over the place.
From Biden to Bharosa, that was the story of November 2020
Some of the triggers mentioned below were the cause and some were the effect while some were a bit of both. Here are the factors that conspired to boost the Nifty and Sensex.
• Biden was voted to power with a decisive mandate. That was the trigger for risk-on investors. Trump had taken relations with China and rest of the world to a Nadir. Markets hope that things should straighten out with Biden at the helm.
• In the midst of the storm clouds over the government’s economic policy and political handling of the COVID, Bihar elections came as a whiff of fresh air. People still reposed their faith on the NDA that reforms would stay.
• Reforms not only stayed, but came back with a bang. Just 2 days after the Bihar outcome, the government announced a stimulus of Rs265,000cr including Rs145,000cr by way of PLI incentives. The stage was set for bullish economics.
• It was not just about hope and hype. There were fundamental triggers too. The revival in high frequency data like IIP, PMI and Core Sector wasquicker than expected. That boosted markets and was ratified with GDP contraction easing to -7.5% in Q2.
• If macros were one side of the story, Q2 results wereoutstanding. Sales may have fallen 5.5% overall but profits were up 150% as better recovery in top line and sharp cost cuts led to expansion of EBIT margins.
• It boils down to the Bharosa (trust) that FPIs repose on India. That was manifested in FPIs pumping in Rs.65,000 crore into Indian equities in Nov-20. That is nearly twice the FPI infusion in the first seven months of the current fiscal year.
Sectors that outperformed the Nifty by a big margin
The Nifty returns of 11.39% in November were driven by sectors like private banks, PSU banks and metals which outperformed Nifty by more than 1000 basis points. Banks did benefit from positive quarterly results but ETFs buying to mirror MSCI EM Index was the key. A lot of this passive money flows went into heavyweight banks.
Metal stocks saw solid gains in November on a surge in metal prices and expectations of buoyant demand from China and domestic markets. There were also other sectors that outperformed the Nifty; albeit to a lesser extent. Auto, consumer durables and realty also saw good returns in Nov-20 in the range of 14-15%..
In the previous month we spoke about the return of rate sensitives after months of quiescence. That trend got accentuated this month. The bigger story was about metal stocks that showed signs of a capital cycle revival boosting demand. Overall, it was a month of markets flattered by good macros, good reforms and the faith reposed by FPIs.
Defensives continue to lag the Nifty in November too
There were no negative performers in Nov-20 due to the sheer momentum in the markets. However, the traditional defensive favourites like IT, Pharma and FMCG underperformed the Nifty in Nov-20. Clearly, the cyclicals and the India stories are taking precedence on hopes of capital cycle revival. Oil lagged as Reliance remained tepid.
What cannot be ignored is that even now in terms of returns since the lows of March, IT and Pharma are the top performers. It surely looks like a well deserved break for these sectors.
What to look forward to in December?
Relatively, December would be quieter and more stable. It is almost certain that the credit policy will maintain status quo on rates and liquidity. Foreign investors normally go slow in December and it may be a time for the markets to introspect, after an action-packed 2020.