SENSEX AT 50,000: ALL TIME HIGH
It’s not that the sensex is new to milestones in its 41-year journey (the base year is taken as April 1, 1979) but the fact that this ‘fast fifty’ came despite a pandemic, one of the world’s strictest lock-downs, weak industrial production numbers sliding exports and selling by most domestic institutions is what makes it thrilling or alarming, depending on what kind of investor you are.
It was a historic day for Indian market with benchmark Sensex surpassing the 50,000 level for the first time. But the market could not hold on to gains and ended lower on profit-taking. The Sensex closed down 0.34% at 49,624.76 after touching a record high of 50,184 earlier in the session. The broader Nifty finished 0.37% lower at 14,590.
Post the strong upmove of the last two sessions, we began the weekly expiry day on a cheerful note tad above 14700 mark amid positive global cues. As the day progressed, the bench marked consolidated for initial few hours and then all of a sudden we witnessed a sharp sell-off to drag index towards 14500 mark. Eventually, due to some recovery in last few minutes index concluded the day.
ANALYTICS
HOW HAS THE SENSEX MOVED AND CHANGED OVER THE TIME ?
Launched on January 2, 1986 (base year:1978-79=100), the country’s first equity index has risen from 124 in April 1979 to 50,000 today, a compounded annual growth rate of 15.9% over 42 years. From 1990, when it hit 1,000, the CAGR of the S&P BSE Sensex is 13.5%.
Thirty-five years ago, there were no IT companies and banking stocks in the benchmark index. it now has 9 stocks from banking and finance, and 4 information technology companies. Only five companies that were initially part of the index retain their place. Reliance Industries, HUL, ITC, L&T and M&M.
WHAT IS BEHIND THE UNHINDERED RISE OF THE MARKET ?
The continuous rally that followed the crash triggered by the Covid-19 pandemic in February and March 2020, was driven by foreign portfolio investors (FPIs). since April 1, 2020 inflows have hit a record Rs 2.41 lakh crore. The system is flush with liquidity, which is one reason for the non-stop rally.
The latest spike that has pushed the Sensex past 50,000 is primarily on account of the smooth transition of power in the United States after the deadly January 6 siege of the Capitol. As President Joe Biden offered hope. promising to take all Americans along and hinting at improving relations with the rest of the world. market sentiments were lifted. Biden’s proposed $1.9 trillion stimulus is likely to keep global markets at elevated levels for now.
Analysts expect the combination of strong capital inflows, low interest rates, leaner corporate balance sheets, and steps taken by the government, to quicken the pace of economic recovery in India. GDP, which contracted by 23.9% in the June quarter is expected to rise by 0.1% in the December quarter.
In the first half of 2021-22, the economy will grow at 14.2% according to a Reserve Bank of India study. Apart from robust FPI inflows, a big reason for the rally has been the impressive corporate results in the second and third quarters.
DOES THIS MEAN THE MARKET WILL CONTINUE TO RISE IN FUTURE ?
As of now, the bulls seem energetic and barring temporary blips, markets are likely to remain at elevated levels, and rise further. While the transition in the US is comforting for markets, there is expectation of additional stimulus, some of which are likely to find its way into Indian equity markets. There is hope that the worst of the pandemic is over, and that rapid vaccination will bring confidence and define the pace of recovery in the economy.
The Indian rally has been driven by the huge liquidity in global markets, and FPIs are expected to bring more funds into Indian equities in the coming financial year as global interest rates remain low and India’s economic fundamentals make the country an attractive investment destination.
ARE THERE ANY CONCERNS AND REASONS TO BE CAUTIOUS ?
While investors want the rally to continue, they know that the markets are trading in an expensive zone, and a dose of negative news may just pull the trigger for a correction. Vaccines have been great news for markets since November 2020, but some concerns remain over new mutant strains of the virus, and the effectiveness of vaccines against them.
Many feel that the duration of the stimulus programme will be key. If the central banks decide to pull the plug earlier than expected, then the markets could see correction as economies need to come back on track before the stimulus is rolled back.
“As of now, liquidity is pushing up the market. When the liquidity tap closes, there could be some correction. The RBI can’t keep on pumping liquidity into the system as it will push up inflation. Some marketmen also feel fundamentals are being ignored. Retail investors should not blindly put money in stocks. Retail investors have burnt their fingers several times in the past,”a veteran stock broker Pawan Dharnidharka said.
The aspect of inclusivity has been flagged. Small businesses and individuals at the bottom of the pyramid were worst hit by the pandemic, but the recovery so far remains largely limited to large and medium corporates. “The government’s fiscal support will have to take care of this, because if growth is not inclusive, it will not be sustainable in the long term,” the CEO of a leading mutual fund said.
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