The decade started with a lot of uncertainty. We all were then experiencing an unseen and unimaginable situation. Countries closed their borders, businesses shuttered down their stores, people were stopped from venturing out and the healthcare system was racing against time to find a cure against the highly contagious virus.
All in all, the wheels of the global economy stopped, the market collapsed, adjusting itself to the rapidly emerging situation. Our benchmark index, Sensex nosedived, from 42,000 to 26,000 points, a drop of over 40% in a month’s time frame. Investors fled to safe-haven assets. Panic and fear were well evident in the market.
But, fast forward to September 2021, all those worries and fears in the market have now long gone as Sensex hits the 60,000 mark for the first time.
For investors, it is quite a fairy tale.
SENSEX @ 60,000
Truly a remarkable feat for the market in this highly challenging market condition, where Covid spread remains a big threat to the Indian economy.
If experts are to be believed, now there is no looking back for Sensex as it is well-positioned to reach the next big milestone of 1,00,000 in the next 3-5 years period.
What has changed in the market and how the market achieved this feat that looked unattainable just a year back, let’s have a look.
Factors that Charged-up the Market and Sensex
Rapid Vaccination Rate: For India Inc., the major concern was the pace of vaccination and it was valid, given the size of the population. Lack of vaccination would have also delayed opening up the economy to its fullest potential.
With record vaccination pace, the government has not only allayed the fears of adequate vaccine availability but also instilled confidence in the minds of people. And, as more people come under this world’s largest immunization programme, it will minimize the threat of Covid and its impact on the economy.
Increased Liquidity in the Market: In any crisis-like situation, liquidity plays a crucial role in managing the situation in a better way. The proactive measures from RBI like, the reduction in the repo and reverse repo rate, CRR has helped to infuse record amount of liquidity into the system helped to calm the nerves of investors.
The government also didn’t shy away from increasing the fiscal deficit percentage or borrowings to fund the revenue shortfall due to the Covid-19 impact. Increased spending from the government helped to keep the demand alive.
Structural Reforms: Reforms in the manufacturing sector like the abolition of retrospective taxes, PLI scheme (production-linked incentive) to attract private and foreign investment have been very positive.
Also, the global call by companies to reduce dependency on China for manufacturing activity has worked in favour of India, which has brought in huge foreign investment.
The clean-up in the banking system, NCLT, recapitalisation of public sector banks in the last few years has helped the Indian banking system to become more resilient to external shocks.
Foreign Portfolio Investment (FPI): The FPI have turned on their investment in the Indian stock market to record a high level. In 2020-2021, the FPIs have pumped in a record $37.5 billion (₹2.75 lakh crore) into the Indian market, the highest in two decades.
Also, retail participation in the Indian stock market is at the highest level. In the June quarter, the retail holding of NSE listed cos rose to an all-time high level of 7.18% or ₹16.18 lakh crore.
Pick-up Economic Activity: Despite the brutal second wave of Covid that hit India in the first quarter of the financial year, the economy witnessed a strong rebound with GDP growth during the quarter came in at 20.1%. Also, strong GST collection figures of above ₹1 lakh crore indicate strong underlying demand in the market.
Record Corporate Earnings: Backed by reduced corporate taxes, strong corporate earnings in sectors like IT, FMCG, Financial, Metals have boosted investor sentiment in the market. In FY 2021, the corporate earnings to GDP ratio rose to a 10-year high level of 2.6%. This bodes well with the rise of the equity market.
At the current stage, there is no reason why the market would not continue its bullish momentum ahead. With inflation within the comfort range of RBI’s 2-6%, a low-interest rate regime, normal monsoon, and underlying demand in the system will continue to provide support to the market to move higher.
The Covid risk remains, but the market reaction would not be as sharp as we experienced during the first wave if there is any surge in cases.
6 Amazing Facts About BSE SENSEX
- The full form of Sensex is “Stock Exchange Sensitive Index”
- Sensex is the oldest and largest stock exchange in Asia and was established as The Native Share & Stock Brokers in 1875
- There are over 5,000 companies listed in the exchange, of which 3,000 are actively traded
- It is Asia’s fastest exchange with a trade execution speed of 6 microseconds
- Dutch East India Company is the first stock to be traded in the exchange
- Reliance Industries has the highest weightage in Sensex at 12%