Hello Readers!
The year 2020, had many events, that turned people’s lives upside down, and these events proved to be a destructive factor for economies in the early months. However, the market showed signs of recovery, in the last months when the restrictions in lockdown were eased.
In the later part of the year, many steps and events came forward that makes people trust the comeback of the market very soon. Improved economy and earnings, ample liquidity, central banks' decision to keep interest rates low, vaccine rollout, and measures taken by the Reserve Bank of India and the government saw the market rally 15 percent in 2020 to hit record highs.
The ending of 2020 and the start of 2021 are showing positive signs for the market recovery but there is kind of risks, which as per experts, can prove to be OBSTACLE in the way of come back of the market.
Let us know about these in detail.
Coronavirus and The Vaccine
Coronavirus and its knock out all over the world were the most popular trend of 2020. Its wreck was also seen in India. However, India’s recovery rate is looking good at more than 96 percent, with a low fatality rate at 1.44 percent. And now with Indian Government approval given to two vaccines, Covaxin and Covisheild, it is expected that soon vaccine will be available for the common people.
After this what challenges will arise is the attainment of effective and speedy containment of the pandemic, for both the old and the new strains. Experts say if the new strain leads to another lockdown in the country, then this can be proven disastrous for the market and people's finances, as it has just started to rise after a heavy downfall.
Harshad Patwardhan, CIO-Equities at Edelweiss AMC, said with successful results from phase 3 trials of many vaccine candidates, the beginning of the end of the outbreak had begun. The global distribution of vaccines remained a challenge, so was the emergence of new strains.
Geo-Political Events
Well, the power of US democracy is soon going to shift in the hands of Joe Biden from Donald Trump and with this, we can expect changes in the US policies.
Joe Biden takes oath as the US president on January 20. It is hard to predict for now what will be his policies, reforms, and his government’s stance on trade relations with China. However, it will be interesting to watch these out!
Experts say a kind of risk can arise from geopolitical events, centering around China, Iran, North Korea, the US policies in respect of these as well as the approach to the tariff issues with China.
Inflation, Crude, and FII Flows
Not only corona has depleted people’s finances, but the increasing inflation is another major cause. And now as the crude oil prices are going high, the prices may remain high for a good time.
The persistent increase in inflation may force some central banks to initiate the partial unwinding of the liquidity already infused into the economy. If this happens, it may adversely affect the earning profile as well as valuation over a period.
FII (Foreign Institutional Investor) money is always a risk for emerging markets. Indian equities saw more than Rs 1.6 lakh crore of inflow in 2020 (against Rs 89,000 crore in the previous year), which was the key driver of the market’s record run.
Also, the Reserve Bank of India might choose to partially roll back the emergency rate cuts of 2020, sometime in the second half of 2021. This could create volatility in the markets, similar to what we witnessed in 2013.
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