The pandemic that struck in March upended the price chart for many counters but also gave traders an opportunity to make the best of the crisis and subsequent recovery.
In the base metals pack, all counters gave solid returns as the demand for metals rose following the opening up of the economy. Energy counters along with some agri commodities also created wealth in the fiscal gone by.
Returns from equities and equity heavy mutual funds were the highlight of the year as Sensex and Nifty suffered from a historic crash and then recovered to record highs during the year. Mid and smallcap stocks also came into their own.
Bitcoin was the asset to hold during FY21 as the cryptocurrency surged nearly over 800 per cent during the year. Other coins also saw a similar demand. Unlike the last few bull runs in cryptocurrencies, this year’s rally was different. It had a few fundamental reasons to appreciate.
According to industry watchers, acceptance and demand from global institutional investors along with the third halving of bitcoin (a phenomena where the number of daily mined bitcoin gets cut in half), which is a supply shock event, led to the massive rally. Eventually, bitcoin prices passed the $60,000 mark for the first time. Analysts believe this rapid rise may continue in the next year as well but they also said less savvy investors should be cautious.
“What goes up must come down, so don’t get distracted by price guessing. Never blindly chase a rally in any market. When, not if, this rally corrects, we can guess that fresh buying will give support to bitcoin. However, buyers like bargains, so they may let the price drop a lot before pushing it back up. Only trade with money you can lose,” said Vikram Rangala, Chief Marketing Officer at ZebPay.
Precious metals: Silver outperforms
Silver was in great demand during the year, largely driven by industrial demand and thanks to a push towards renewable energy. Silver is used in solar panels. The metal advanced 73 per cent in FY21, from Rs 36,871 per kg at the end of March 2020 to Rs 63,666 on Tuesday. The white metal hit a record high of Rs 78,000 in August but corrected later.
Gold, which is used as a hedge against inflation and currency devaluation especially in times of a crisis, rose 8 per cent to Rs 44,331 per 10 grams. It also hit its record high of Rs 56,191, but slid as bond yields rose. Tax cuts on gold also put pressure on prices.
“There should be a deeper bottom for gold. The US treasury is again trading higher and we expect more rise in that and dollar index. The new level should be Rs 42,000, which could be a good level to buy,” said Vandana Bharti of SMC Global Securities.
She said there could be a scenario when gold may fall below Rs 40,000. “Nobody is talking about it but I am sensing that for a very brief period of time we may see it but people won’t get the opportunity to encash it as there will be strong buying at that level,” she added.
Base metals: Demand outstrip supply
On the back of demand recovery, the base metal pack saw its fortune turn as prices rose. Compared to last fiscal end prices, copper surged 75 per cent, tin 46 per cent, zinc 45 per cent, nickel 36 per cent and aluminium 32 per cent. Lead underperformed, rising just 17 per cent.
Supply and demand have been off balance since Q2FY20 as a demand pick-up after pandemic-related closures outpaced ramp ups in production and mining, with companies battling technical problems and growing order backlogs. This has led to a sharp rise in prices.
Base metals also got a boost from special focus on infra spending by the government but rising rates have lately concerned government authorities. Moreover, rising consumer discretionary demand is also leading to a surge in prices.
“The US will release details on the infrastructure spending package that could be between $3 and $4 trillion. Focus now shifts to Mfg. PMI data from major economies due later this week; wherein upbeat reading may further fan demand optimism. Furthermore, the downside in metals pack may also be capped amid expectation of accommodative stance by central banks of major economies,” said Kotak Securities in a note.
Agro commodities: Jute stands out
Jute was the clear winner among agricultural commodities as it surged 25 per cent in the last one year to Rs 6,230 per 100 kg. One particular reason for the rally in the golden fiber was the Cabinet nod for 100 per cent jute packaging for food grains and 20 per cent for sugar.
Cardamom, which is used as spice in many cuisines, plunged 44 per cent as production is expected to have increased 78 per cent in the year. Wheat also struggled because of record rabi produce.
How different commodities fared in FY21
Guargum and guarseed, which are used in drilling of crude oil wells, eventually recovered as demand for petroleum surged. They added 6 and 7 per cent, respectively. Sugar and mentha oil, however, remained subdued, falling in low double digits.
Energy: Crude oil triples
For the most traded and perhaps the most important energy commodity, crude oil, the year was unprecedented. In the international markets, at one point prices of crude futures dipped below zero, shocking even the pundits.
The prices, however, have now recovered sharply thanks to production cuts and rise in demand. The counter has nearly tripled since March 2020. In fact, it has started to disrupt fiscal maths of import dependent countries like India.
“Prices will get pressurized in the coming quarter the deteriorating near-term demand outlook in the face of still hampered refineries, surging interest and renewed European lockdowns and can push WTI prices back to $50 if demand recovery gets stalled and vaccine efficiency comes into question,” said Navneet Damani and Shweta Shah of Motilal Oswal.
Natural gas, prices for which fluctuate largely due to weather patterns in the US and Europe and related demand, returned 50 per cent in fiscal 2021.
Residential properties back in demand
Demand for residential properties recovered, after a multi-year lull in the real estate market. Meanwhile, commercial properties, especially warehouses continued to give good returns as e-commerce boomed.
The government intervention with unlocking and a series of reforms boosted sentiment for the sector. A combination of low-interest rates and reduction in stamp duty resulted in monthly sales of nearly 10,000 units for Mumbai consistently since September.
“Homebuyers realized the importance of a spacious home with state-of-the-art amenities, and fiber connectivity that can double up as an office space. We have already started witnessing consolidation in the sector, developers with scale and strong books will emerge stronger post the pandemic. The broader economic recovery is expected to pick up momentum and help most sectors. FY22 will be a year of growth for the sector, with the return of pricing power,” said Krish Raveshia, CEO at Azlo Realty.
Equity: Eye popping returns
For equities, the year was of a great turmoil and record breaking run. Indices and stocks crashed to their multi-year lows in March only to recover to create a string of fresh record highs by the end of the year. And, for a change, small and midcap indices outperformed their larger peers.
BSE Sensex has climbed 70 per cent so far in the fiscal while BSE Midcap has risen 91 per cent. But the BSE Smallcap index, which has over 650 actively traded constituents, has given an eye-popping 114 per cent return in the last 12 months.
Massive money supply, especially from outside India, pushed indices higher. Hopes of a swift recovery, vaccine rollout and good earnings growth were other major reasons behind such a spectacular rally. Nifty is now trading at a record high valuation.
“With fresh restrictions and faster vaccination we can expect sentiment to remain positive at the start of the new fiscal year. The earnings season will also kick in from the second week of April which could turn out to be the driver for stocks. Logically, markets should see some uptick from the first week of April. If this does not materialize at the start of April then we could see Nifty50 drifting towards 13,500-13,600,” said Rusmik Oza, EVP, Head of Fundamental Research at Kotak Securities.
Metals were the best performing block, with BSE Metals rising 150 per cent in 12 months. BSE IT and BSE Auto were other sectors that rallied over 100 per cent. Meanwhile, BSE Capital Goods also gained 93 per cent as white goods makers shot up with the government focusing on infra and Make in India initiatives.
Mutual funds: Thematic schemes lead
Whatever the strategy, almost all mutual fund schemes gave good to stellar returns in 2020, with some of them returning over 100 per cent in the last one year. Contra funds were picks of the fiscal year. Dividend yield funds also outperformed.
In the equity category, funds investing in different themes and broader markets outpaced others. ICICI Prudential Commodities Fund, ICICI Prudential Technology Fund, Kotak Small Cap Fund, PGIM India Midcap Opportunities Fund and Nippon India Small Cap Fund were the top five performing funds, rising 124-170 per cent.
In the debt fund category, low duration funds shone and credit risk funds again came to the fore and outperformed their peers. JM Low Duration Fund, Franklin India Low Duration Fund, Franklin India Credit Risk Fund, Aditya Birla Sun Life Short Term Fund and Baroda Credit Risk Fund were top performers with enviable 10-27 per cent returns.