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Going into 2021, markets finally get rid of Brexit, but other risks remain

Investors will be awaiting the RBI's Financial Stability Report which is due this week (Photo: Mint)Premium
Investors will be awaiting the RBI's Financial Stability Report which is due this week (Photo: Mint)

This week, at the fag end of calendar year 2020, investors would closing watch expiry of Dec futures & options on Thursday. Analysts caution that Indian bourses could witness higher volatility and drying up of funds inflow as the new margin norms set-in. In that scenario, significant buying or selling by FPIs would be key for the markets, analysts added

After a prolonged to-and-fro, global equity markets are finally past Brexit. On December 24, Britain inked a deal with European Union, just seven days before the former exited the EU trade bloc. Analysts say, even though the agreement is yet to be ratified by their respective parliaments, the move averts a no-deal scenario, so it is sentimentally positive for the stock markets.

While the jury is still out on how beneficial the contours of the deal are for both the parties, analysts largely expect a positive reaction by global equity investors. That said, other risks remain.

Drawing parallels between January of 2013 and 2019, Lance Roberts of Real Investment Advice said in his latest blog, "With the Federal Reserve continuing QE and a near-record number of stocks above their 200-dma, and an extreme bullish bias, the risk of a correction exists. A government shutdown, stalled stimulus bill, or a surge in virus cases could do the trick." QE is short for quantitative easing.

According to Jared Dillian, investment strategist at Mauldin Economics, rise in inflation and the US Federal Reserve reversing its dovish stance sooner-than-expected could turn out to be among the negative surprises for equity investors in 2021.

"Currently, the market is pricing in the first Fed hike in 2024. I tend to think we will get it sooner than that. If that’s true, there will be some great trades to put on. Maybe it’s because of inflation, or maybe it’s because of asset markets heating up. How will the Fed tighten? Well, it could stop buying junk bond ETFs. Or scale back corporate bond or mortgage-backed security (MBS) purchases. Maybe it stops QE altogether. This would certainly be a surprise!," he said in his blog on 24 December.

Global equity markets are drunken on liquidity, which has been a key trigger for the market's up move. Fiscal stimulus along with historically low interest rates have kept the US dollar on a weak footing. Market experts see the weakness in the greenback continuing in 2021, which would work in favour of emerging markets.

After a steep correction on the back of fears of a new virus in the UK, in-line with global peers, Indian equities saw a deep cut. However, in the subsequent sessions, the market recovered after the US government announced the much-awaited fresh stimulus of USD900 trillion.

This week, at the fag end of calendar year 2020, investors would close watch expiry of December futures & options on Thursday. Analysts caution that Indian bourses could witness higher volatility and drying up of funds inflow as the new margin norms set-in. In that scenario, significant buying or selling by FPIs would be key for the markets, analysts added.

As for company-specific developments, a handful of stock were in focus. The royalty concerns of investors in ACC Ltd and Ambuja Cements Ltd were addressed and the focus is now expected to back on their expansion plans. The shares of IT major Wipro hit a new high on the back on inflow of orders. Similarly, the Sadbhav Engineering Ltd stock was on investors radar screens as they monitor the pace of order execution. According to a report by credit bureau Cibil TransUnion, banks must look at NBFCs to know real retail loan stress, putting the stocks of the former in spotlight.

Meanwhile, investors will be awaiting the Reserve Bank of India's Financial Stability Report which is due this week.

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