Budget 2021: Stock markets to continue their rally ahead with minor hiccups

After a tough 2020, Indian economy seems set for revival this calendar year. The contraction in the GDP in 2020 was majorly due to enforced pullback in economic activity to mitigate the impact of coronavirus.

After the resumption of economic activities, India came out be more resilient than expected, post first quarter of 2020. India`s reputation has gone up by several notches in the international arena. It is now seen as a trusted partner by several countries. India`s strategy to encounter coronavirus infections has worked out in its favour.

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Its recovery rate and case fatality ratio are much better compared to similar ratios for many other countries. The recent monetary policies have demonstrated that the government and the regulator will do everything it takes to keep the economy afloat.

Also, strong numbers reported by various companies post-Covid era have drawn significant amount of investors` interest. These factors majorly fueled the optimism and helped the Indian benchmark indices sustain their healthy rally.

Indian markets have put a historical show in the year 2020 amid high volatility. Indian benchmark indices generated more than 14 per cent YoY returns in 2020 and recovered more than 85 per cent since their March lows.

Sensex reached a high of 50,184.01 on January 21, 2021. The current rally in the market can be accounted to investors` hopes over Budget 2021 along with the January effect where the FIIs are quite active after their holiday season.

If the markets do not undergo a healthy correction before the Budget 2021, then one can expect significant amount of correction post Budget unless the Budget is path-breaking or capital market friendly with respect to policies.

Markets are already factoring in earnings recovery in the third quarter of 2020 and the statement of the Finance Minister that this budget shall be unlike anything in the past 100 years.

If the Finance Minister fails to meet the hype, investors` sentiments might get triggered which might lead to considerable amount of correction.

There has been a pick-up in e-way bill volumes, growth in exports and increase in the September GST collections to almost pre-Covid-19 level.

These trends need to be sustained in order to boost the demand further. We expect the Indian markets to continue their rally ahead with minor hiccups.