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It's been a long while you haven't read anything in marketnotes.in and that's because a famous deadly virus didn't allow me to think and post anything.
Now I am fine, let get back to our topic :)
Let's begin with a historic day, The combined market capitalisation of BSE-listed firms crossed $3-trillion mark for the first time ($1.5 trillion in March 2020). This is amazing!! India had first hit the $1-trillion m-cap mark in May 2007 and managed to double the level in 10 years. The latest $1 trillion has come at a relatively faster clip — in four years.
The disconnect between economy and markets are not new. In FY21 the Indian economy experienced an unprecedented contraction estimated at 8% of the GDP. But guess what? Nifty went contrarian and delivered 71% returns.
Tens of millions suffered, some of them lost their jobs, MSMEs went through severe pain, Financial companies are loaded by higher NPAs, theaters, parks, resorts all are empty but market doesn't care much. It is a different beast and behaves apparently strangely without any empathy for the sufferings around.
But Why market is going up rather than going down?
Top 5 reasons:
1) Markets are forward-looking.
Remember Dow theory? Market Discounts Everything
When the markets crashed in March 2020, we were trapped by an ‘unknown thing’, something no one had seen before. Now, The discovery of vaccines have given us clarity on the end game. vaccines are winning the war against the pandemic and the global economy staging a vaccine-powered recovery aided by unprecedented monetary and fiscal stimulus. This recovery, led by the US, China and Europe is already on. This emerging robust economic recovery, coupled with historically low-interest rates, has the power to keep the global market rally going, despite high valuations.
2) Robust FII inflow
When the effect of covid increases in any country, FIIs go for substitutes and vice versa. If you see the data, FIIs have been consistent sellers since April 2021 and sold out Rs 15,635 crore worth of shares as they were busy buying stocks in covid free countries like South Korea and Taiwan, But once the second wave started shedding in India, they come back.
3) The speed of Vaccination:
India became the second country after the US to achieve this coverage in just 130 days. America took 124 days to reach the 20 crore mark. Other leading countries in vaccination against Covid-19 include the UK, which has reached 5.1 crore mark in 168 days, Brazil which reached 5.9 crore mark in 128 days, and Germany, which reached 4.5 crore mark in 149 days.
As of government data, more than 34% population above 45 years has received at least the first dose of vaccine in India so far. Similarly, over 42% of the 60+ population in the country has received at least the first dose of the Covid-19 vaccine.
The more vaccine we administer, the safer place it will become.
4) India's Outperformance in other large emerging markets
Chart-busting export growth, high levels of manufacturing activity, and relatively moderate retail inflation in April pushed up India’s ranks in the league tables despite a selloff by foreign equity investors that pulled down both stock market capitalization and the rupee.
Higher export orders pushed up the manufacturing purchasing managers’ index (PMI) to 55.5 in April , the highest among all the emerging markets considered here. Global demand thus played a key role in pushing up India’s ranking in April.
5) Lessor Lockdown effect
PM Modi resisted calls for a national lockdown and allowed states to frame their own lockdown rules based on their needs, and this too may have contributed to the lesser economic impact. More limited and regional lockdown measures were being implemented by state governments have successfully prevented a slide in economic activity like last year. The current approach India is taking to curb the virus — staggered, state-level restrictions on non-essential services rather than a blanket nationwide lockdown — suggests the impact is likely to be limited relative to last year.
Despite all these factors, the road ahead for the real economy appears more uncertain and depends on how deep covid-19 spreads, and how long it lasts. But unless vaccinations pick up pace, workers and consumers are likely to remain cautious even if cases decline over the next few weeks.
Several economists have downgraded their growth forecasts for this fiscal year. Yet, the extent of the downgrades has been much less than last summer, when a nationwide lockdown brought the economy to a standstill. Some economists have argued that the second wave could hit consumer sentiments and aggregate demand sharply given that the affluent classes have been hit harder this time. Others argue that the return to normalcy may be slow unless vaccination picks up pace, given the deep scars of the second wave.
Hope for the best!