Despite nose-diving more than 3% in the last 5 trading sessions of February, domestic equity benchmarks still managed to bag the title of the best performing stock markets among major global economies, a report by CARE Ratings showed. The report highlighted a similar pattern that emerged across global equity markets — rising for the first 20 days and then reversing gains with inflationary concerns and soaring bond market yields. The reasons behind the global rally last month were, swifter than expected economic recovery, mass-vaccination drives, upbeat corporate earnings, and improved economic outlook.
What pushed D-Street higher?
“Indian equity markets ended higher by almost 6% by month-end February 2021 compared with month-end January 2021 and re-achieved the 50,000 landmark number in February 2021,” CARE Rating said. Pushing Sensex and Nifty higher was the euphoria around a smoother recovery from the pandemic, reform heavy Union Budget, and the accommodative Reserve Bank of India. Sensex ended January 2021 at 46,286 and Nifty was seen at 13,635 points. By the closing bell of February, Sensex was at 49,099 and Nifty was at 14,529.
On Wall Street, Dow Jones and S&P 500 grew more than the technology-heavy NASDAQ as tech stocks witnessed a sell-off. Stock markets were buoyant on the faster than expected economic recovery for the US economy, improving macroeconomic data, and swift vaccine rollout. While Dow Jones zoomed 3.2%, S&P 500 gained 2.6%, while NASDAQ managed to jump only 0.9%. In the UK, FTSE 100 jumped merely 1.2% during the month. The British government plans to lift all coronavirus restrictions by June 2021, aiding the positive momentum.
In Asia, Japan’s Nikkei 225 surged 4.8% during the month, while South Korea’s KOSPI jumped 1.2%, and China’s Shanghai Composite managed to move 0.7% higher. For the Nikkei 225, it was almost a 30-year high. Both South Korean and the Japanese equity markets reacted positively to global growth during the month. China’s stock market rally was muted owing to the week-long New Year holiday.
Bond yields scare equities
The global market rally was marred primarily by rising bond yields, along with inflationary concerns. “The sudden spike in US treasury yields during the latter of the month have also led to foreign inflows putting bets back on US treasury instruments as against riskier emerging economy assets,” the report said. Bond yields in the US rose to as high as 1.6% last week, trading at their highest in nearly a year.
Apart from bond markets, domestically, the rising number of coronavirus cases have also been a concern. CARE Ratings believes, apart from the reasons cited above, profit booking and heightened valuations have also played a role in dragging stock markets down.