Vaccine progress may lead to risky rally in stocks

Vaccine development and US policy certainty have paved the way for risk on rally in the global stock markets. After two years of sustained polarization, markets have broad-based both within and outside the Nifty, with mid cap and small cap indices outperforming the Nifty year to date.

A report by Centrum Broking said the Pfizer vaccine is expected to be available to GAVIS signatories as early as end December thus bringing possible solution to the most disruptive event of the century. These significant developments have changed the global sentiments as world markets have rejoiced and started a fresh global risk on rally.

In India, a falling caseload curve coupled with the better than expected economic rebound has also supported the positive sentiments. Alongside, RBI's continuous accommodative stance of low interest rates will also help the economic rebound further, the report said.

Even FY22E for Nifty50 shows a strong growth of 21 per cent, given it is coming from a low base. "Therefore, we believe that it is time to move away from a defensive portfolio and add beta to the portfolio.

We are betting on faster economic recovery and thus, increasing weights on banks and infra and reducing weights on FMCG and pharma. We continue to maintain an overweight stance on IT, as we believe that digital transition is irreversible and lot of habits acquired during Covid-19 will not be reversed easily," the report said.

For the global economy, a Biden-led administration will imply a more favourable foreign policy from the US relatively than a Trump administration.

Hence, trade-dependent economies such as China, Germany and most of the ASEAN economies should benefit from reduced uncertainty. A Biden administration would also resort to a lesser restrictive immigration policy that would be favourable as well.

Biden is determined to undo the harm Trump brought to US international interests. Although Biden does have an 'America first' policy, but his trade policies are likely to be less contentious. Further tariff hikes on China are unlikely while revisiting the 'phase-one' trade deal and there could be another round of negotiations to move towards phase two. However, a roll-back of tariffs is also unlikely. He is also more open to multi-lateral trade agreements while also putting indirect pressure on China by seeking consensus with key allies.

With covid-19 pandemic taking a toll on significant number of lives & livelihoods across the globe, the vaccine development news has sparked renewed optimism amongst the nations reeling under the wrath of this pandemic.

A front-runner Coronavirus vaccine developed by drug giant Pfizer & BioNTech was more than 90 per cent effective at protecting people compared with a placebo saline shot.