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chief investment officer
Poonam Tandon
Chief Investment Officer

Market Matters March 2021

March witnessed the Indian equity markets ending the month with only minor gains. Globally concerns surrounding rising treasury yields & news about financial troubles at a hedge fund offset positives in the form of increased vaccine rollout, continuation of US Fed’s accommodative stance and unveiling of mega stimulus by US President Biden. 

Globally, US President Biden introduced a mega (~ $2 trillion) infrastructure stimulus to overhaul and upgrade the nation’s infrastructure. US Treasury yields rose to more than a year highs led by inflation concerns. US Dollar too remained at highs. Crude oil fell whereas precious metals rose from multi-year lows. Domestically, new confirmed COVID-19 cases spiked with active caseload rising steeply and recovery rate coming lower. Retail inflation hardened whereas industrial activity contracted. GST collections (for February) continued to surge ahead.   

Ultra-accommodative monetary policy of global central banks created a liquidity glut which propelled equity market valuations led by multiple expansion primarily. Domestically, Equity markets had been hovering above 21x PE multiple zone for past few years which is considered as expensive in historical context. COVID-19 triggered a market correction which brought down valuations. However, post the pandemic outbreak, enormous monetary & fiscal stimulus by global central banks and governments respectively combined with improving macro data aided market recovery from the lows. Going by past trends, there could be rotation of sector leadership and newer sectors could emerge as leaders. On the fixed income side, RBI’s open market purchases improved the market sentiment which offset negative global cues in the form of rising US treasury yields. Borrowing calendar is largely in-line with market expectations. CPI Inflation rose.

Going ahead, market focus would remain on mass vaccination drive, trajectory of COVID-19 infections in light of emergence of second wave. Upcoming corporate earnings season would also be eyed. Other risks include sharp rise in commodity prices, rise in inflation, flare up in geo political tensions & trade wars.

Upcoming corporate earnings performance would provide clarity on corporate earnings trajectory. The optically high headline market valuations could be factoring an uptick in corporate earnings. Considering the sharp rise in market valuations post the Budget, there is increased likelihood of intermittent market corrections. Market volatility could also remain high in the short term but it can also provide opportunities to accumulate quality stocks. Bond yields have hardened from the lows on the back of significant supply of paper due to large borrowing programme in the next fiscal, tapering down of demand in the near term and unfavourable global macros. Accommodative policy stance, surplus system liquidity offset to an extent the impact of high government borrowing, unfavourable global macros & high fiscal deficit.

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