The Indian Stock Market created history on 21st January, as the Sensex clocked a lifetime high of 50,000 points, stimulated by various factors guiding the world markets post the pandemic period.
After experiencing one of the biggest crashes at the start of the year, where Sensex nearly lost more than 15,000 points owing to the pandemic, this 9-month rally has almost doubled the money of the investors. The tally rose from a multi-year low of 25,639 points on 24th March 2020 to a lifetime high of 50,181 points on 21st January 2021. The markets have been subjected to a lot of surprises in the past, and this rally was just an example of how volatile they can be. However, the most intriguing factor that makes us wonder about this milestone is the rise in spite of the pandemic, which comprised of nationwide lockdowns, falling production levels, and lack of industrial and consumer demand.
Factors that have led to this rally include –
The news of the vaccination programs has created a positive impact as people hope to resume their normal way of living once vaccinated.
Foreign Portfolio Investors have been continuously investing in the Indian Stock Markets post the pandemic due to the availability of shares at low prices during the period.
With Joe Biden sworn in as the President of the United States, the global markets expect stimulus packages from the government so as to increase production and to combat the effects of Covid-19.
The RBI has played its part by keeping the interest rates low, so as to instill money and demand in the economy and bring it back to pre-covid levels.
Companies have been posting positive quarterly results as Q3 FY20-21 has observed a gain in demand for various industries on account of positive consumer sentiment.
The IT sector has contributed its part by introducing new measures so as to meet the demand of work-from-home services. Leading IT companies like HCL Tech, Infosys, TCS have seen a huge rise in demand. The NIFTY IT Index has gained over 64% in the past year.
Growth in major stocks like Reliance Industries, Hero Motocorp, HUL, etc has also been driving the NIFTY index to all-time highs.
The main question that arises over here is- Are these levels sustainable? Is it the right time to invest in the markets when all the stock prices are relatively high?
The economy has observed a certain boost since its core industries including the metal, infrastructure, and pharmaceutical sectors have seen a rise in demand. With more and more people overcoming their fear of the virus, and a rise in production levels, most companies have resumed their normal operations and are trying to get back to pre-covid levels. Sectors like Education Technology, IT, E-retail platforms like BigBasket, Amazon, etc. have seen a boom in their level of operations as people try to adapt to new ways of life.
Factors that will decide the fate of the market include –
The global interest rates have been kept really low so that people get money at cheap rates and this can fund the demand generated for daily operations. Keeping the interest rate low for a long period can be problematic as it can lead to inflation on account of huge demand, and this, in turn, can lead to rising in prices of all commodities. Therefore, this cannot be treated as a long-term solution to our problems and can cause volatility in the markets.
The price valuation of stocks is dependent on the way the company performs in the quarter. The third quarter has seen positive results for various industries as they generate adequate revenue to fund their losses during the pandemic period. However, the key is to meet the expectations that people have regarding the company’s results. Therefore, it will act as a major factor in determining the stock value, and will ultimately have an effect on the NIFTY index.
Finally, the most important determinant is the progress of the vaccination program and the consumer sentiment guiding the markets. A successful vaccination drive can ensure the sustainability of the index levels, and can even contribute to a further rise in the valuation.
The Union Budget will be presented on 1st February, and it is expected that the government will introduce new schemes so as to further demand and stimulate money in the economy.
Certainly, no conclusion can be made about the markets right now since most of the stocks are really expensive and near their 52-week high levels. It has been both eye-catching and worrisome at the same time. After the January 2008 credit crisis, the market took more than 70 months to regain its highs. But this time it has beaten all odds and emerged as a winner. This rally has certainly attracted the eyes of various analysts as they try to examine the future movements of the stock markets. With the upcoming budget that is expected to further demand and the rollout of the vaccination drive, it will be interesting to see if the markets hold up to these levels and continue to perform in the future.
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