Fundamentals, flows, macros drove equity markets in 2020: Nilesh Shah

Fundamentals, FPI inflows and macroeconomic factors drove the Indian equity markets in 2020, while strong corporate earnings and positive news on the COVID-19 vaccines front would support the bourses in 2021, Kotak AMC Managing Director Nilesh Shah said on Wednesday.

Fundamentals, FPI inflows and macroeconomic factors drove the Indian equity markets in 2020, while strong corporate earnings and positive news on the COVID-19 vaccines front would support the bourses in 2021, Kotak AMC Managing Director Nilesh Shah said on Wednesday. The December quarter corporate results will indicate whether the earnings growth momentum seen in the preceding three months will sustain, Shah said at a virtual press conference. The year 2020 has been remarkable for equities as there have never been such sharp bear and bull markets in a short span of time, he said. Indian equities staged a heroic recovery from the March lows and Dalal Street finally wrapped up 2020 on a bullish note, with the Sensex gaining nearly 16 per cent last year. The rally was led by factors like the over USD 23 billion inflows from FPIs after the government gradually lifted lockdown restrictions, strong retail participation, better-than-expected corporate earnings in September quarter and decline in number of active COVID-19 cases. ''FPI flow, sentiment boosted by economic normalisation and fundamentals drove the markets in 2020,'' Shah said.

Going forward, foreign portfolio investor (FPI) flows will be supported by central banks globally and the low-interest rate scenario will support equity valuation, he emphasised. The volatility caused in 2020 was due to the pandemic and this year can be volatile as well due to vaccine-related issues, Shah added. He further said investors should not be overweight on equities at the present valuations and instead look for asset allocation strategies. Kotak Asset Management Company (AMC) is overweight on sectors such as cement, private financial services companies, industrials and automobiles. According to Shah, investors should keep an eye on trends in the unemployment level in the economy which is still higher than pre-COVID-19 levels, as well as the health of MSMEs and inflation. Kotak AMC expects that the Reserve Bank of India (RBI) would gradually normalise liquidity in the banking system and low retail inflation seen in December would ease the market's concerns over reversal in the apex bank's stance on the policy front.

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