Year-ender 2020 | These two sectors outperformed this year, will 2021 be as good?

The market sank to new lows and also found new highs in 2020. The benchmark indices lost around 40 percent from the peak in January to sink to four-year low in March as the coronavirus outbreak raged. After hitting the rock bottom on March 24, the market picked up momentum and has surged 80 percent, so far, amid signs of an economic recovery and earnings growth.

Foreign institutional investor (FIIs) flow has been driving the rally as most western countries are battered by the second wave of COVID-19. FII net bought Rs 1.35 lakh crore of shares from May to December.

The IT and healthcare stocks led the rally till August and remained the biggest gainers/outperformers in 2020. Digitalisation, easing of supply constraints and cost-cutting measures boosted sentiment for IT. With healthcare in focus due to the viral outbreak, vaccine progress and easing of USFDA concerns gave the pharma sector a boost.

The BSE information technology index surged 47 percent and healthcare index climbed 57 percent in 2020. They have gained 103 percent and 92 percent from March lows.

The IT sector demonstrated capabilities during this uncertain time with strong earnings performance which continued in Q2 also, Neeraj Chadawar of Axis Securities told Moneycontrol.

“IT sector continues to beat expectations, seen a margin recovery driven by pyramid rationalisation and reduced travel cost better than expected guidance has changed the outlook for the sector resulting earnings upgrade. The resilient show has led the IT companies to gain by 240 bps to 13.7 percent by market cap in top 500 companies in India versus 11.3 percent on February 20, 2020," Chadawar said.

After the rally, the healthcare sector witnessed consolidation for two months from mid-September and IT from mid-October but both sectors gained momentum again from mid-November.

Experts remain positive on both the sectors, though in the near term other sectors, which did not participate in the rally, may catch up.

"We continue to believe prospects for IT and pharma looks promising over the medium term," Chadawar said.

Vinod Nair of Geojit Financial services also said IT and pharma should have a good portion of the equity portfolio, on a long-term basis because they have got a new place in the world business which can further re-rate the valuation.

Poonam Tandon of IndiaFirst Life Insurance Company recommended staying invested in the IT space as the sector provided a good margin of safety to the portfolio.

Among other sectors, BSE energy was the third biggest gainer with 18.5 percent rally largely led by Reliance Industries. The stake sale deals in telecom and retail businesses lifted RIL sharply.

BSE auto, capital goods, FMCG, metal and power indices gained 7-11 percent. Bankex was the biggest loser, with 4 percent loss in 2020, though the sector buying from November amid easing of NPA concerns.

The broader markets also participated in the rally, outperforming the benchmark indices following a sharp upside after the September quarter. The BSE midcap index jumped 18 percent and smallcap rallied 29 percent, but both are yet to reclaim their record high levels seen in January 2018.

Experts believe the broader markets are likely to outperform the benchmarks in 2021.