The rally in the Nifty was initially concentrated in defensives. Subsequently, the rally spread to cyclicals, with private banks leading a sharp surge. We also saw frontline midcaps rally towards the last week of the month. Metals also saw a comeback.

The significant FII inflows are the principal reason for this performance. In the coming month, we should see FII flows definitely change. Sustaining the flows of November may be a tall ask. DIIs are seeing outflows and have been selling through November. We should keenly watch if selling by DIIs sustains in December. Similarly, we need to look out for FII buying and judge how long it will sustain its current momentum.

Retail participation has been at its highest this year as more investors are directly trading in stocks. Retail investors seem more inclined to buy small and microcaps. The sustainability of this trend must be viewed at different levels. While headline sentiment may sustain, it remains to be seen if the buying frenzy spreads into other parts of the market.

Overall, December promises to be an exciting month for equities. The markets will close an otherwise tough year on a more positive note than investor expected it to. December will set the context and expectations for investing in 2021.

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