In a year that saw the Covid-19 pandemic impact every sector, the stock markets have not just stood strong but offered impressive returns. As the financial year 2020-21 came to an end on March 31, the benchmark index Sensex posted the largest ever gain of 68 per cent in 11 years. In FY2010, the Sensex had delivered returns of 80.5 per cent.
The benchmark index Nifty also registered a gain of 71 per cent during the year. The BSE Midcap index rose 91 per cent, while the smallcap index shot up by 115 per cent. Data shows that the overall market cap of BSE listed companies stood at over Rs 205 lakh crore, which is an increase of 92 per cent for FY21.
Turnaround from the low of March 2020
In the last fiscal, as of March 2020, the market cap of firms listed on the BSE was a little over Rs 113 lakh crore, according to BSE data. Investors lost over Rs 37 lakh crore in 2019-20, with the maximum losses recorded in March 2020. The month saw the Sensex and Nifty crashing over fears of the coronavirus pandemic.
The Sensex had closed at 29,468 points and the Nifty at 8,597 on March 31, 2020. The benchmark indices, Sensex and Nifty, declined 23.8 and 26.03 per cent in the March 2019-20 fiscal. On March 24, 2020, Sensex touched its 10-year low of 25,638.9 points following the announcement of the nationwide lockdown. From then to January 22, 2021, the Sensex has seen a spectacular turnaround, with the benchmark index scaling a high of 50,000 points. This shows an almost 100 per cent returns in a mere 10 months.
The Sensex dropped 627 points on March 31, 2021, to close below the 50k level it had reached earlier this calendar year. The Nifty also dropped a little more than 154 points to close at 14,690.70.
Record FPI inflows
A key reason for the Sensex’s show can be attributed to foreign portfolio investments. India was the largest recipient of FPI wealth in the fiscal year with net inflows of Rs 2.6 lakh crore. According to data, investments in equities hit Rs 2.74 lakh crore, the highest such investment recorded since the NSDL started making FPI data public. Foreign portfolio investment has been attributed to liquidity in the global markets and a faster than expected economic recovery.
Overall, in 2020-21, FPI pulled out Rs 24,070 crore from the debt segment while the hybrid instruments witnessed over Rs 10,000 crore, according to data. Overall, foreign portfolio investors were net buyers through a major part of the fiscal year, barring the months of March, April, May and September. In the earlier financial year (March 2019-March 2020), foreign portfolio investors were net sellers as they sold over Rs 27,500 crore.
One of the reasons that have driven FPI money into India has been low interest rates globally, which has ensured that liquidity was mopped up by emerging markets such as India. The other reason for the liquidity in the global financial markets has been the announcement of a $1.9 trillion pandemic relief package by President Biden in the United States, which triggered a consistent inflow of assets into markets like India. According to the RBI data, FPI wealth in equities for this fiscal has been the highest since the financial year 2013.
The pace of vaccinations and corporate earnings will impact the performance of the market in the coming fiscal year (2021-22). The country has seen a rise in Covid-19 cases in the recent past, with Thursday registering over 81,450 fresh cases, the biggest single-day jump in six months. With the vaccine drive on, and the programme open for those above 45 as well, the pace is expected to pick up. This is expected to boost economic revival, going forward. According to a UN report, India is expected to register a stronger revival this year and record a 5 per cent growth.
The RBI’s accommodative stance thus far and the high liquidity in the global markets have ensured that the markets have been on a good run thus far. The benchmark index, Sensex, registered 68 per cent gains, while the Nifty recorded 71 per cent gains in the fiscal year that has just ended. The previous time such a gain was recorded was in FY 2010 when 80.5 per cent returns were recorded. The pace of vaccinations and the economic revival following is likely to decide which way the markets will go in the coming fiscal year.