Equity trading in India has been spectacularly bullish in last few months with the indices about to end the year at record highs. Most stock brokers in India are expecting this rally to continue next year as the economy rebounds and ultra-low interest rates globally keep overseas investments buoyant. Despite the massive dose of volatility, the current year has been a highly proficient one when it comes to picking up long term wealth creating investment opportunities. In fact,  from the point of view of meeting long term financial goals, the year 2020 provided plenty of insight into structural strength of companies and how they can weather the unforeseen contraction in the economy due to the Covid-19 crisis. As the year winds down, let us take a look at the outperforming sectors this year that drove the wild rally in local equity markets. 

IT: Digitalisation, easing of supply constraints and cost-cutting measures boosted sentiment for IT sector in CY2020. Similarly, what started out as a temporary solution for the Indian IT & ITES companies after the outbreak of pandemic i.e., to facilitate work from home, has now become a structural change which could result in Indian BPM (Business Process Management) industry becoming further competitive in the global markets. The IT sector demonstrated capabilities during this uncertain time with strong earnings performance which continued further in Q2FY21. The Nifty IT index surged around 53% in 2020 and marked a rise of 117% since March low. 

Pharma: Pharma was an obvious beneficiary due to the Covid-19 pandemic. With healthcare in focus due to the virus outbreak, vaccine progress and easing of USFDA concerns gave the pharma sector a boost in CY2020. The efforts of pharma companies to combat the current crisis with the help of the government showed the robustness of the industry. India is a hub and the largest manufacturer of vaccines in the world and is also pioneering the discovery of COVID-19 vaccines. The Nifty pharma index surged 60% in 2020 and gained 102% since March low. 

FMCG: Despite the Covid-19, the overall demand for household staples and grocery items stayed firm. The lockdown led to a shift in consumption patterns of consumers as essentials topped the shopping lists. Online grocery and gourmet foods shopping websites and retailers saw good inquiries and kept the supplies of FMCG products pretty much smooth. The demand has also encouraged more industry players to join in FMCG companies, and retail stores to have amped up their presence on online platforms with new apps, and tie-ups with logistics companies for home deliveries. The Nifty FMCG index jumped around 13% in 2020 and marked a surge of nearly 48% since March low. 

Consumer Durables:  Work from home and life without domestic help have pushed the average Indian consumer’s demand for fresh/replacement in consumer durables and other appliances. The consumer durables sector registered a decent growth as demand for TV, dishwashers, washing machines, and large-sized refrigerators surged during the festive season. Pent up buying was also strong for this segment in the last quarter of 2020. The Nifty Consumer Durable index surged 21% in 2020 and gained 68% since March low.

Auto: Automobiles sector was battered by an unprecedented slowdown even before the coronavirus pandemic. However, the resilience of the Indian auto industry was tested severely when the nationwide lockdown was announced towards March-end. The recovery in demand was swift and the industry players also embraced digitisation to adapt to the new normal and concentrated on financial health by reducing costs and generating free cash flows. According to the Society of Indian Automobile Manufacturers (SIAM), the growing preference for personal mobility and the gradual opening of economic activities have lent some momentum and the industry is now seeing signs of recovery in some of the industry segments. The Nifty Auto index surged 9% in 2020 and gained around 100% since March low.

Conclusion: 

Global stock markets have seen a relentless spurt in last few months and the focus will now shift on the shape of the recovery in the post Covid-19 world. However, new strains of the Coronavirus and time needed for effective vaccinations across large swaths of population will also be very important in the near term. For local equity markets, the foreign institutional investors have been instrumental in pushing up the equity markets to record highs and investors will now need to cautiously frame long term strategies in tune with inputs from professional wealth managers or an online investment advisor.