Markets log best monthly gain since April; Sensex, Nifty gain 11.4%

US election results, vaccine hopes boost risk appetite of global investors

The domestic indices have logged their best monthly advance since April. In November, the benchmark Sensex and Nifty50 indices gained 11.4 per cent each, underpinned by the highest-ever foreign inflow.

The US election verdict and progress on the vaccine front boosted risk appetite of foreign portfolio investors (FPIs). Their daily average purchase stood at over $400 million, or Rs 3,000 crore.

The small- and mid-cap indices outperformed with gains of over 13 per cent each. Friday was the last trading day of the month as markets are shut on Monday.

The latest gains have come on a high base as the markets had already jumped 50 per cent from their Covid-19 lows seen on March 23 and October. The rally in November helped the Sensex and the Nifty surpass their respective records. The Nifty also crossed the psychological 13,000-mark during the month. All Nifty components gained during the month, with four of them surging more than 40 per cent. Metals and banks were best-performing sectors.

Biden boost

The victory of Democratic presidential candidate Joe Biden in the US and the Democrats and Republicans retaining control of US House of Representatives and Senate, respectively, was seen as the best outcome for equity markets.

Ahead of the elections, investors had bet on a “blue wave”, i.e. Democrats sweeping both the White House and Congress. However, a split Congress was welcomed by investors, who felt Republicans in the upper house would block any move to increase taxes or health care spends. Biden was also seen taking a less aggressive approach towards China, which investors hope will shore up sentiment toward export-dependent economies and companies in Asia, resulting in more foreign flows to emerging markets (EMs). 

Biden’s reported nomination of former US Federal Reserve Chair Janet Yellen as Treasury Secretary has stoked optimism that the US Fed will continue with its loose monetary stance.

Vaccine cheer

Within days of the poll results, the markets got another shot in the arm. 

This time from better-than-expected results of Covid-19 vaccine trials. The announcements by AstraZeneca and Pfizer regarding the efficacy of their candidates were big boosters. 

This sparked optimism of normalcy returning early next year. This helped shares in sectors that were battered to rebound. Firms in the hotel, aviation and entertainment sectors posted huge gains.

“The general expectation is that with the breakthrough in vaccines, things will get back to normal, the borders will open up a lot quicker, and Asia will be the growth engine globally. With Biden getting elected there is optimism around improvement in international ties. He is expected to avoid a confrontational approach towards China and global trade. As money flows into global and Asian markets, India will get its fair share,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies.

India got more than its fair share of FPI flows in November. It was the highest recipient of such flows among EMs, after China. However, the sharp gains have pushed valuations to expensive territory, which experts feel could eat into future returns.

“The markets have done well from the lows and valuations are not cheap. Secondly, we saw a sharp improvement in the economy from the lows. Whether the economy stalls now and starts weakening needs to be seen as we are getting some mixed signals. We now know that vaccine has more or less come. Still, the question is whether there will be a second wave and fresh lockdowns before all of us get a shot of the vaccine,” said Jyotivardhan Jaipuria, founder of Valentis Investors.