Indian markets kicked off 2021 on a positive note, with both benchmarks closing at record highs on Friday. Expectations of an economic recovery and a recovery in earnings in the coming year have boosted general investor sentiment. The Nifty finished above the 14,000 mark for the first time at 14,018.50, up 36.75 points or 0.26%. The BSE Sensex closed at 47,868.98, up 117.65 points, or 0.25%.
Most of the world’s markets were closed for the New Years holiday, but there was widespread positive overall sentiment at the back of the new U.S. stimulus, the Brexit deal, and expectations that the vaccine rollout will bring better days.
“The Sensex recorded its ninth consecutive week of gains, its longest streak of gains since April 2010,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services Ltd.
The market momentum seen over the past two months is expected to continue thanks to strong global signals, sustained foreign flows and improving macro trends, Khemka said. December’s quarterly results and the Union budget will be some of the key events for the market, he added.
Stock market confidence was also supported by record gross goods and services (GST) collection in December, which suggests a continued recovery in economic activity and a gradual return to normalcy. Gross GST collections hit £ 1.15 trillion last month, the highest on record since the new tax regime was implemented, according to the Union Finance Ministry.
Despite high volatility and an economic slowdown, Indian markets ended 2020 with gains of 15-16%, while BSE Midcap and BSE Smallcap outperformed, rising 18-29% over the year.
Markets could behave differently in the first and second half of 2021, according to Jaideep Hansraj, managing director and managing director of Kotak Securities. “We can expect Nifty to be between 14,000 and 15,000 in the first quarter of CY21. After the fourth quarter budget and earnings season, we expect the markets to enter a kind of consolidation phase and see a time correction, ”he said.
Plentiful liquidity, low interest rates and capital flows should support markets, analysts said. However, high valuations may pose a threat to the general rally in Indian markets, they said.
Keeping interest rates low or zero around the world may continue to push valuations higher for the world and for India, said Dhiraj Relli, Managing Director and Managing Director of HDFC Securities.
Much of the surge in the markets is over, and from now on, its rise (if substantial) would be gradual and measured, Relli said. “In the meantime, we might see some patching episodes, especially if the FPI flows dry up for a few days / weeks,” he said.