Daily Market Update Dec 31

unnamed Daily Market Update Dec 31

A day ahead of the deadline for tax filing, the CBDT extended the last date for individuals by 10 days and for other categories of filers between 15 days and 1 month. The IT department confirmed that as of 29-Dec, over 4.54 crore tax returns for FY2019-20 had been filed. This is slightly lower than 4.77 crore returns filed on comparable date in the FY2018-19. Out of the 4.54 crore tax returns filed, nearly 2.52 crore were ITR-1 returns. The ITR-4 returns for FY2019-20 were above 1 crore; higher than last year. The broad trend was that individual filings were down while business filings of returns had gone up.

For fiscal year 2021-22, India is expected to exceed its current year spending budget of $415 billion. The government is expected to prioritize infrastructure projects. The government hopes to raise close to $40 billion in the next fiscal through asset sales for funding these massive projects. The Union Budget on 01-Feb is expected to focus on reviving businesses and providing the soothing touch to the millions who had lost their jobs in the pandemic. Government has already clarified ahead of the budget that growth and infrastructure spending are their bigger priorities than fiscal deficit math. India has a tough task as the fiscal deficit is expected to get closer to 8% of GDP this year due to an Rs.5 trillion revenue shortfall. With GDP contracting 23.9% in Jun-20 and 7.5% in Sep-20; pump priming appears to be the only option.

The impact of COVID is really felt on office space demand. In 2020, the office space absorption across 6 major cities stood at 27.4 million SFT; a drop of 51% compared to 55.7 million SFT in 2019. In its report, global property consultant Savills India has observed that large deals above 100,000 SFT accounted for 57% of leases in 2020. The leaders were Bengaluru with office absorption of 6.8 million SFT, Hyderabad with 5.4 million SFT and NCR with 4.4 million SFT. Mumbai came in fourth place with office absorption of just 2.9 million SFT. IT sector accounted for 46% of all leases in 2020, followed by BFSI at 14.3%.

There is good news for active fund managers. It looks like human fund managers read the COVID tantrums and turbulence better than computer-driven quantitative strategies. After underperforming quants for most years since 2008, active managers finally got the better of the Big Blue in 2020. It perhaps shows that in unusual years human fund managers still have a better chance of picking stock market winners compared to machines. To an extent, the top performing stock pickers were helped on by tech stocks and start-ups, which had a heady rally in 2020. Volatility helped macro managers too.

L&T appears to be displaying the typical “tale of two stocks” syndrome. Its market cap at Rs.180,000 crore is exactly where it was in 2017. However, that is only one side of the story. L&T performance could have much worse had it not been for its IT subsidiaries. For example LTI and LTTS have seen market cap multiply 3-fold in last 3 years. If you add Mindtree, then IT contributes close to 40% of the value of the L&T conglomerate. However, that has been more than offset by the value destruction by L&T Finance and the core engineering business of L&T. The Infrastructure boost is yet to yield dividends for L&T.

As year 2020 comes to a close, the big story would be the 83% rally in the Nifty from 7610 in March to almost 14,000 by end of Dec-20. What is material is that Indian equities have recovered faster than its Asian peers like Hong Kong, Indonesia and Malaysia. Most of these South Asian markets have gained about 25% to 35% from the March lows. This is despite the fact that GDP actually contracted by 7.5% in the Sep-20 quarter. One explanation for this outperformance is that India has been a magnet for foreign portfolio flows. FPIs have infused Rs.120,000 crore in November and December alone. Unlike the Asian economies, that are largely reliant on China, the Indian economy is driven by domestic consumption and that makes it more immune. Experts believe that year 2021 could be crucial to test trend sustenance.

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