Roller-coaster: FY21 market rally broad-based; benchmarks return over 60%

By Urvashi Valecha

The outgoing financial year has been nothing short of a roller-coaster ride for Indian equities, which rebounded after the market crash late March 2020 on fears over the economic impact of the Covid-19 pandemic.

The benchmarks have returned over 60% in FY21. The Sensex and Nifty have risen by 64.38% and 66.61%, respectively, over FY21, driven largely by foreign portfolio flows of $37.48 billion that came into Indian equities.

The rally in FY21 has been more broad-based and not restricted only to a few big stocks. After underperforming for two years, broader markets not only participated in the rally but even outperformed the benchmarks.

The BSE Midcap and BSE Smallcap rose by 85.85% and 108.79%, during the course of the financial year, while the BSE500 rose by 72.11%.

The market’s strong recovery, according to experts, was led by the easy liquidity and expectations in economic recovery.

Going forward the markets would react to global bond yields and the rising Covid-19 cases. G Chokkalingam, chief investment officer, Equinomics Research and Advisory, said, “All of us know that the stimulus and expected recovery in the economic activity contributed to the stellar rally in FY21.

However, the most important factors that would decide the rally in FY 22 are rising bond yields globally, resurgence in Covid-19 cases that would again impact the economy and monsoons. Most importantly the extent of economic recovery that should be at least 400 bps higher than the decline we witnessed in FY 21″.

The last week of March 2021, saw investors dump stocks after rising Covid-19 cases in India and other countries made market participants wary of the economic impact it would have. Selling by foreign portfolio investors to the tune of $623.3 million in the last three trading sessions also hurt markets. The Nifty and Sensex witnessed a sell-off and ended the week lower by 1.6% and 1.7%.

However, on Friday’s close the markets recovered and rose with the Sensex rallying by 568.38 points (1.17%) to close at 49,008.5 and Nifty rallied by 182.4 points (1.27%) to close at 14,507.3 on improving global cues and ahead of the domestic results season, which will kick off in April. Market experts believe that as long as the economy will see growth, inflation and bond yields would not be much of a worry.

Hiren Ved, director, CEO and CIO, Alchemy Capital Management, said, “As long as growth is rising, you don’t need to worry about inflation and yields. In the current context, whether it is US or India, we don’t have a situation where inflation is rising but growth is not.

We are at the cusp of a phenomenal growth story, which will be longer and higher than what we saw over 2003-07. So many factors have come together in favour of growth whether it is China plus one, global and domestic fiscal and monetary policies are supportive so also is the geopolitical situation”.

Despite the risks for the market’s current rally, market experts remain bullish on the equity markets. Hemang Jani, head equity strategy, broking and distribution, Motilal Oswal Financial Services, said, “The current volatility is caused by rising Covid-19 cases however, the earnings picture for the next fiscal year is looking very strong and the central banks will remain accommodative. There is no case for significant rise in bond yields. So, we continue to remain bullish on the markets”.