The benchmark indices have recorded double-digit return for the second straight calendar year with the S&P BSE Sensex and Nifty50 surging 16 per cent and 15 per cent, respectively, in 2020 (CY20) on the back of strong liquidity from foreign investors. From their March 2020 low, both the indices have surged nearly 87 per cent.
However, the broader index, S&P BSE500, which gained 17 per cent in CY20 has recorded its best performance in the past three years. The S&P BSE Midcap and S&P BSE Small-cap index have rallied 20 per cent and 32 per cent respectively in CY20, after registering negative returns in the past two consecutive calendar years – 2018 and 2019.
The rally, despite all odds – Covid-19 induced lockdown that brought all activity to a standstill for nearly three months and falling economic growth – was powered by a strong gush of liquidity from foreign portfolio investors who pumped in $22.4 billion (Rs 1.66 trillion) in equities during the year. The flows in November and December are one of the highest ever seen in Indian equities. In the last two months alone, FIIs have poured almost Rs 1.18-trillion in Indian equities, data show.
This, in turn, has resulted in a broad based performance across sectors. Among individual stocks, Divis Laboratories, Larsen & Toubro Infotech, Escorts, Tanla Solutions, Laurus Labs, Dixon Technologies, IndiaMART InterMESH and Affle (India) are among the 36 stocks from the S&P BSE500 index that have given over 100 per cent return in CY20. Of these 36 stocks, 17 stocks are from the pharmaceuticals (10) and information technology (7) sectors.
Three Adani Group companies – Adani Green Energy, Adani Gas and Adani Enterprises and two Tata Group companies – Tata Communications and Tata Elxsi – saw their market value more-than-doubled during the year.
On the other hand, 179 stocks from the BSE500 index have recorded negative returns during the year. Punjab National Bank, Union Bank of India, Canara Bank, Coal India and Oil India were down over 25 per cent. PVR, RBL Bank, IndusInd Bank, Raymond, Greaves Cotton, Future Retail and Future Enterprises from the private sector, slipped between 30 per cent and 80 per cent.
Going ahead, most analysts expect the mid-and small-cap segments to do well as economic recovery gathers pace and the central banks continue to pump liquidity in the system to support the recovery.
“Our thesis is based on the fact that delta in earnings growth during a recovery phase will be high in mid-caps and small caps vis-à-vis large caps whereas multiple expansions in the former will provide additional alpha for capital appreciation,” said analysts at ICICI Securities in a recent note.
Analysts at Jefferies, too, remain optimistic on the road ahead for Indian equities in 2021 but caution against the expensive valuation at which the markets are trading at.
“The Indian markets have hit record highs, mostly on the back of strong FII flows in the latter part of 2020. Though markets look expensive on price-to-earnings (PE) basis (around 21x one-year forward) but adjusting for the low yields, the earnings and yield gap gauge is trading only marginally above its long-term average,” wrote Mahesh Nandurkar, managing director at Jefferies in a recent co-authored note with Abhinav Sinha.
Top gainers and losers on S&P BSE Sensex in CY2020
Top gainers and losers on BSE500 index in CY2020