Budget sops, Covid-19 tax surcharge: Market expectations from 2021

 

One of the key ratios to gauge the valuation of the market is the Market Capitalisation to GDP Ratio, which is around 95 per cent currently - a bubble territory.

The calendar year 2020 (CY20) for the markets has confirmed the old adage of stock markets – 'expect the unexpected'. Though Covid-19 had begun to raise its head at the beginning of the year, it was expected to be a regional issue with the rest of the world remaining largely unaffected. The markets were steadily moving up in the last few weeks of 2019 and it was expected that momentum would continue in the New Year with reforms gathering pace in the second term of the Modi Government. Covid-19, however, induced crack in March 2020 took many by surprise and was seen as a sure death for those affected by it.

Most of us look at the future with an assumption that we would be alive to participate. When our very survival is at stake, it's futile to guess the future of the economy. The fear of the unknown was at its peak.

With the country and the economy coming to a halt, businesses shut, and no clarity on when normal life would resume as most of us were confined to our homes, one would have expected people to have resigned to their fate. Fortunately, that wasn’t the case. Those who could align their businesses to the requirements of Covid-19 situation, did so with alacrity. New opportunities mushroomed and one of them was the stock market. This was among the few activities that were not stalled by the government, despite cries to halt trading due to the steep fall.

Those sitting at home with not much of other activities but a comfortable bank balance, explored trading on the stock markets. One could call it a 'beginners luck' – as most of the around 60 lakh new investors who came in from March 2020, would have made extra-ordinary profits since markets have rallied more than 75 per cent from March lows. Nobody could have expected such a spirited move back then. And now, they have been pumping more liquidity as confidence has risen significantly. Foreign institutional investors (FIIs), too, have been aggressive in the last couple of months.