The Indian equities performed decently in 2021. Investors would normally have nothing to complain about the returns on their equity portfolios.
·
The benchmark Nifty is up ~21%
YTD2021. It is 6th consecutive year of positive return on Nifty.
Nifty has now returned positive return in 9 out of past 10years (2012-2021).
·
Nifty has averaged 15881 (based
on daily closings) in 2021, which is 44% higher than the same average for 2020.
Based on change in average, this is best performance since 47% gain in 2006;
implying strong returns for SIP investors.
·
For long term buy and hold
investors, five year rolling CAGR in 2021 is ~15.7%, which is best performance
since 2013. Five year absolute Nifty return in 2021 is ~107%, also highest
since 2013.
·
The market returns were fairly
broad based in 2021. Smallcap (~56% YTD2021) and Midcap (~44% YTD2021) have
done significantly better than Nifty (~21% YTD2021). Broader market indices are
now outperforming the benchmark Nifty on 3yr and 5yr basis. The household
(retail) investors investing in diversified portfolio have also therefore
recouped the underperformance of 2018-19.
·
Nifty has outperformed most of
its emerging marker peers in 2021; and has performed in line with the top
performing major global markets US and France.
…but some concerns emerging
In recent weeks however the market has given
some cause for concern that have clouded outlook for the year 2022. Having
quickly recovered all the losses from panic reaction to the pandemic, and moving
about ~50% higher than the pre pandemic Nifty highs of ~12500, the Indian
equity markets now appear tired and indecisive.
·
After topping ~18600 in October
2021, Nifty is not back to ~17000 level, where it was in August 2021. However,
during this 3200 odd point up and down journey of Nifty, the actual outcome
might be very different for various investors, depending upon their portfolio
positioning and activity during this period. Considering that the daily volumes
were highest around the peak level of October 2021, it is likely that some
investors got greedy at the peak and invested larger amount in mid and small
companies. They may have lost 10-25% of his latest installment of investments.
·
In 4Q2021, Nifty has averaged
over 17800, against the current level of ~17000. A large proportion of stocks
are trading below their technical key levels, e.g., 200DMA, indicating
underlying weakness in markets.
·
The market breadth has been
consistently negative since August 2021.
·
Indian markets have
outperformed most of the global peers in past 20months. The global investors
are now looking at the underperforming markets in search of better returns.
Many global brokerages like Credit Suisse, Morgan Stanley, CLS, Goldman Sachs
etc., have downgraded the weight of Indian equities in their portfolios to
allocate more to China etc. The global flows to India may therefore slow down
further. Foreign investors have been net sellers in secondary markets for past
many weeks.
·
RBI has started to normalize
the excess liquidity through variable rate reverse repo auctions of 14-day and
28-day. Currently, INR6tn/INR8.6tn excess liquidity is being absorbed through
VRRR auctions. Going ahead, the RBI plans to increase the amount and tenor of
absorptions through VRRR. This could impact the cost of borrowing for market
participants and therefore impact the market sentiments.
·
Despite recent market
correction, greed continues to dominate fear and household flows remain strong.
The probability of a sharper correction in broader markets therefore remains
decent.
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