In the base metals pack, barring lead, most counters gave returns in their 20s and 30s, riding on the recovery in manufacturing demand after the pandemic, but agro-commodities faltered as market expected a bumper crop.
Bitcoin: Not so cryptic rise
Bitcoin was the asset to hold during Calendar 2020, as the cryptocurrency surged nearly 300 per cent for the year. When seen from its March low, the rise is even spectacular at 625 per cent. Other coins saw similar demand. Unlike the last few bull runs in cryptocurrencies, this year’s rally was different. It had a few fundamental reasons to appreciate.
Sumit Gupta, Co-founder and CEO, CoinDCX, said acceptance and demand from global institutional investors and 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. Analysts believe this may continue in 2021 too.
“Bitcoin is likely to see a significant rise in the year ahead. With the recent announcements from MassMutual, Fidelity, Microstrategy and Square, we’re seeing institutional capital worth hundreds of millions of dollars entering this asset class. Coupled with wider awareness and education, it’s easy to envision the price of bitcoin going up 100 per cent in 2021,” said Rahul Pagidipati, CEO, ZebPay.
Precious metals: Silver outperforms
Silver was in great demand during the year, driven largely by industrial demand and thanks to a push to renewable energy. Silver is used in solar panels. The metal advanced 43 per cent in 2020 from Rs 46,691 a kg at the end of 2019 to Rs 67,005 on Tuesday. The white metal hit a record high of Rs 78,000 in August, but corrected later.
Gold, used as a hedge against inflation and currency devaluation especially in times of a crisis, rose 28 per cent to Rs 49,854 per 10 gm. It hit a record high of Rs 56,191, soaring almost 43 per cent. The rise was despite jewellery demand being somewhat lower due to lower spend by Indian consumers amid the lockdown.
“The environment of ultra-loose monetary policy and negative real rates is here to stay in the year ahead, and that is likely to favour the yellow metal. For 2021, gold prices can go even higher to Rs 65,000 per 10 gm,: said Sugandha Sachdeva, VP-Metals, Energy & Currency at Religare Broking.
She believes Sovereign Gold Bond Scheme is one of the most lucrative investment options, and one can take long-term exposure to gold through SGBs, which can be added to one’s portfolio for diversification as well as wealth creation. The additional interest component and capital gains tax exemption, if bonds are held till maturity, can ensure higher returns through SGBs.
Base metals: Back in demand
On the back of a demand recovery, the base metal pack saw its fortune turn by the end of the year. Compared with last year, copper surged 33 per cent, tin 24 per cent, nickel 23 per cent. Zinc 22 per cent and aluminium 19 per cent. Lead underperformed, with just 1 per cent gain.
The commodities market was not doing well due to reduced demand from consumers in the first half of the year. However, once the number of coronavirus cases started declining, the commodities market saw an uptrend. This happened because of growth in demand for commodities amid a sudden opening of the markets, said Pranjal Kamra, CEO for Finology, an investment advisory firm.
“Steel consumption was 27 per cent in April and went up to 67 per cent in July amid a sudden rise in demand for steel. One could notice the graph of major steel companies rising upward during the third quarter,” he said
Base metals also got a boost from the government’s special focus on infra spending, but rising interest rates have left the government authorities concerned. Moreover, rising demand for consumer discretionary is also leading to a surge in prices.
Agro-commodities: Jute, cotton gain
Jute was the clear winner among agricultural commodities, as it surged 23 per cent for the year to Rs 6,189.50 per 100 kg. One reason for the rally in the golden fibre was the Cabinet nod for 100 per cent jute packaging for food grains and 20 per cent for sugar.
Wheat, which forms part of the staple diet of many Indians, plunged 21 per cent on expectation of a record rabi harvest. Cardamom was the biggest loser among the agro-commodities, as it dived 52 per cent for the year.
Guar gum and guar seed, used in drilling of crude oil wells, also suffered, as demand for petroleum products came down sharply during the year. They fell 24 per cent and 7 per cent, respectively.
Mentha oil, sugar and chana are ending the year in the red, Meanwhile, cotton, pepper and castor seeds are likely to register single-digit gains.
Energy: Crude shock
For the most traded and, perhaps, most important energy commodity, crude oil, the year was unprecedented. In global markets, prices of crude futures dipped below zero at one point, leaving even the pundits in a state of shock.
The prices remained subdued for most of the year. Even now, crude oil price is down 20 per cent from last year’s level. However, as the world opens up, recovery is likely to gain ground. Natural gas traded 9 per cent higher compared with last year.
“Crude oil prices should head northward next year as demand is expected to normalise gradually through the course of the year,” said Jyoti Roy, DVP and Equity Strategist, Angel Broking.
Residential property offers flat return
Demand for residential properties was low during the year due to low returns, but commercial properties gained traction. The year saw 1.28 lakh residential unit launches, a 46 per cent decline from 2019; and sale of 1.38 lakh units, a 47 per cent decline from 2019, an analysis by Anarock showed. Prices remained largely stable across the top seven cities compared with last year.
At the same time, demand for warehousing rose, and with many large global corporates evaluating to completely or partially shift their production base from China to India, warehousing requirements are likely to rise further.
“Calendar 2021 looks promising for the traditional real estate asset, classes including commercial office and residential properties, and also for the new-age ones such as warehousing and data centers. Co-working requirements may also rise once the vaccine becomes available for the masses,” said Anuj Puri, Chairman of Anarock Property Consultants.
Equity: Massive crash, then a record run
For equities, it was a year of great turmoil and then a record-breaking run. The indices and stocks crashed to their multi-year lows in March, only to recover and create a string of fresh record highs by the end of the year. For a change, the smallcap and midcap indices outperformed their larger peers.
BSE Sensex climbed over 16 per cent for the year while BSE Midcap Index rose 20 per cent. BSE Smallcap index, which has over 650 actively traded constituents, has given an eye-popping 32 per cent return for the year.
Massive money supply, especially from outside India, pushed the indices higher. Hopes of a swift recovery, vaccine approvals and good earnings growth were the major reasons behind the spectacular rally. Nifty traded at record valuations at the end of the year.
“Earnings growth has remained subdued over the past few years on account of structural reforms such as GST, IBC and RERA. Largecap valuations are in the expensive zone, but earnings recovery going forward will likely provide a cushion to valuations,” said analysts at Motilal Oswal Private Wealth Management.
Pharma and IT stocks were the biggest gainers of the year, benefitting from pandemic and the following lockdowns. Shares of chemicals and white goods makers shot up, as the government turned its focus on turning India into a manufacturing hub.
Mutual funds: Thematic schemes lead
Whatever the strategy, almost all mutual fund schemes gave good returns for 2020, with some returning up to 70 per cent year to date.
The top five funds of the year were ICICI Prudential Technology Fund, Aditya Birla Sun Life Digital India Fund, Franklin India Technology Fund, Tata Digital India Fund — all four tracked prominently invest in IT stocks. PGIM India Midcap Opportunities Fund was placed fifth with 49 per cent returns.
In the debt fund category, gilt funds, which primarily invest in government securities, outperformed, with some of them delivering 14 per cent, on par with Nifty return for the year. Dynamic bond funds and Banking and PSU funds also gave comparable returns. Credit risk funds were the worst performers of the year, especially the schemes from the stables of UTI AMC, Nippon AMC and Franklin Templeton.
“Fixed income generated good returns for investors, a 115 basis points rate cut by RBI triggered a rally in bond prices. We expect relatively muted return from fixed income assets next year, as the rate cut cycle is behind us for now,” said Roy.