Source: Finblab
It’s not been a long time when we saw Sensex, the index of BSE touches the 46,000 benchmark level on 9th December 2020. Nifty 50, index of NSE also touched 13,000 levels in December. These figures would seem astonishing to someone in March when markets crashed drastically due to global economies shutting down attributable to the deadly Coronavirus. This offers us a reason to ponder over what’s happening within the world that makes the markets so optimistic.
Source: Business Standard
The main reason behind this bull run is that the foreign investment inflows into India. Net Foreign Direct Investment into India has crossed Rs. 1.42 lakh crores in 2020 compared to Rs. 1.36 lakh crore in 2019 (figures as stated in a report by Live Mint). In a recent interview, RBI governor Mr. Shaktikanta Das had said that foreign investors are attracted by India’s growth prospects and there’s no harm in the markets soaring at unprecedented heights. Also, India has many undervalued stocks and there is so much potential for development in the country. The government of India acted responsibly and announced several fiscal stimulus packages which have contributed to amplified business confidence and reduced uncertainty amongst the Indian firms.
Source: CNBC TV18
In the recent monetary policy announced by the Reserve Bank of India on 4th December 2020, the decision to maintain the status-quo on repo rates made the markets roar. The RBI also said the real GDP growth for H2 is anticipated to be positive. According to the statements released, real growth for 2021 is projected at -7.5% which incorporates an expected 0.1% growth rate in Q3 and 0.7% growth rate in Q4. For Q2 the GDP contracted by 7.5% which was less than the projected contraction for the quarter. Macroeconomic concerns such as aggregate demand and profit margins have been rising in both the rural and urban sectors. Manufacturing firms have seen a lift as the economy unlocks in a full-phased manner. This can be a bit of positive news for the migrant labourers who have been gradually returning to work.
Stock Markets reflect the emotions of all investors in the most transparent manner. Trade experts have a say that markets shall remain bullish for a year more or less thanks to positive prospects. The economic indicators express the present-day scenario which isn’t welcoming but the economic outlook is what matters in these uncertain circumstances. The government and RBI have collectively tried their best to recover the economy which is positively correlated with the stock exchange rally.
The upcoming news about the rules to open international travel can act as a boost to the adversely hit – tourism sector. The revival of this sector will further increase the indices and contribute to multi-speed return and a V-shaped recovery in the Indian economy. It’ll also lead to more sectors participating in the market rally.
Reliance Industries announced the arrival of 5G technology next year which comes as an enormous development for the country and given its reach to usher in global investors like Facebook and Google on-board is a proud moment for India. These resonate with the aim of digitization and globalization for India in the forthcoming years. The recent Burger King IPO was subscribed by over 156 times, shows the craze amongst the people to explore and venture out into new sectors. The stock received a bumper opening at a 92.25% premium.
Moreover, the news of the vaccine against Covid-19 and also the first dose of Pfizer vaccine administered is what the world wanted to listen to for the longest time. This factor is equally important as the FII’s investments in the market rally. Suddenly the prices of gold and silver went down as gold is considered to be the safest investment by Indians. This shows that uncertainty is reducing and people are ready to take risks and dive into the world of value investing.
The BSE Small-cap and Mid-cap stocks are performing better than the large-cap stocks. This could be due to turbulent market conditions and also the fact that they attract higher returns as well as possess high risk. The risk-taking appetite of those losing their jobs seems to have increased and mutual funds are keen on investing in mid-caps.
On 15th December 2020, JP Morgan released a statement forecasting Nifty to 15,500 levels by December 2021. Another brokerage house forecasts Sensex to touch 50,000 by December 2021. Despite the trade experts being positive about the bull run, they still expect a correction of at least 15% in the markets. The explanation being financial year-ending for foreign investors as they ought to close their books by booking profits. The RBI governor continues to be positive and assures that India contains a cushion for sustaining outflows. It encourages companies to cut back dividends i.e. retain the earnings. So we need to be patient for the economy to recover and think of a brilliant long-term way forward for the country.
Author – Anoushka A. Kothari