Since its arrival in March 2020, the COVID-19 pandemic has taken a severe toll on every diaspora of the Indian Society including its economy. Indian economy had registered a severe dip in 2020 and the stock market was at an all-time low. Reason? The uncertainty which the pandemic brought along with it.
Nations around the world were imposing absolute lockdowns, allowing only the essential services to run which included the grocery and the food markets, healthcare, and e-commerce among others.
This resulted in a severe decline in the stock prices of the companies that didn’t qualify as ‘essential’ which included the entertainment sector, banks, and restaurant chains.
But in what came as a surprise, our economy steered towards a massive rise even as the COVID-19 situation of the country went on to worsen.
Our economy’s journey to recovery kickstarted in November 2020 when it recorded an inflow of $8 Billion in the same month. After almost 23 quarters of constant falls in the stock prices, NIFTY shot up.
Out of the 200 companies listed on the Bombay Stock Exchange, 182 of them recorded price hikes during that month.
The price-to-earnings ratio of the 50-stock index at NIFTY is currently 27 times higher than its 10-year average.
The Reason Behind The Stock Market’s Recovery
The pertinent question that now lies before us is what forces drove the stock market toward such an unprecedented recovery amidst such harsh conditions. Experts suggest that the two major global factors responsible for the rise were the US election results and the news of the COVID-19 vaccine hitting the market soon.
The Election of Joe Biden as the US President had inspired confidence in investors as they had realized that he might not be able to increase tax rates.
Moreover, the pandemic opened opportunities for businesses like pharmaceutical and chemical companies, the technology industry, and remotely operating industries.
With no sudden national lockdown implemented in 2021, and increased knowledge of the virus, the industries are more cautious and less afraid of collapsing again.
Read More – COVID-19 Surge Causes Rupee To Go From Asia’s Best To Worst-Performing Currency In Just Two Weeks
They are aware that measures like halting operations and firing of employees could be done if the need arises.
On the other hand, the employees are keen on keeping their jobs intact even with reduced salaries. Consequently, reduced salaries have forced the employees to invest their money in the stock market to earn revenues.
This investment influx has resulted in the stock prices getting back to their previous normal or even higher rates. The Indian market is currently earning 32 times more profits than China’s economy.
The expected nature of the actions to be taken by the authorities has further added to it. The Financial Institutions and the RBI will proceed to offer moratoriums, state-guaranteed loans, and other liquidity-enhancing measures to compensate for the decreasing cash flow in case another national lockdown is implemented.
All these factors have started showing noticeable results, as the stock market has been performing overly well in recent months, even as India continues to be the worst COVID-19 hit country in the world.
Recent Trends And The Expert Views
On Monday, Sensex at BSE hit an all-time high of 42,597.43 points. This count is almost double of 25,981 points, which it had recorded in March 2020.
The National Stock Exchange’s NIFTY has caught up and rose by 1.6% to close at 12,461 points, its highest-ever.
Over this dramatic rise in figures, the Founder of Helios Capital Management, Samir Arora has opined that the economic decisions in 2020 were hassled due to less knowledge and control over the situation. Over the months, the authorities and industries have understood that it is not that bad.
Deven Choksey, managing director of KR Choksey Investment Managers Private Limited has highlighted that India has been a favorite destination for stock ownership over China due to the variety of reforms introduced over the past year.
Increased stock ownership means an inflow of wealth in the country and India has recorded an inflow of $8 Trillion since march.
“And this money has entered into every economy, every asset class. India has been a favorite destination for most of the people in the world. With the variety of reforms that the country has been carrying out, India has become a favorable destination over China,” he said.
No doubt liquidity has played a major role, but if the market is analyzed closely it could be noticed that it hasn’t been crazy. The only thing that has changed over the past few months is the preferences of the investors.
Where on one hand, the pharma companies and IT industries have steered the market, banks and PVR chains are mostly low. The reduction in interest rates, experts say is another binding factor that has helped it rise tremendously.
Though the probability of the stock market soaring continuously is not promised, it is important to note that these unexpected gains happen when India continues to report over 4,00,000 lakh COVID-19 cases in the world.
These numbers are far worse than the previous year. With the sharp increase in cases, the pressure on the healthcare infrastructure has been dwindling, unlike last year. Yet, the economy outperformed itself to show alien results in such unprecedented times.
Against all gains, there is a constant risk of staggering trends. The stock market has been rotating and giving priority to one sector at a time as and when the need arose.
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