Scholarships: The Rise and Rise of the Sensex – UP Front News
On September 24, the Bombay Stock Exchange (BSE) Sensex hit 60,000 points, a new high and yet another exciting time for Indian stock markets, which have been exceptionally dynamic in recent months. The rise in Sensex this year follows sharp declines from last year – on February 28, 2020, as Covid-19 cases began to rise, the market experienced one of its worst day-long crashes , losing 1,448 points to close at 38,297; on March 23, again, it recorded its biggest drop on record – 3,935 points – after the Center announced the nationwide lockdown.
However, in the second half of 2020, it climbed back to 45,000 in December and beyond 50,000 points on January 21 of this year. From that point on, it only took the Sensex eight months to add another 10,000 points: on September 27, the Sensex closed at 60,077. Even though only five of the 30 stocks in the benchmark would have represented more than half of the 10,000 point increase, experts say the momentum is widespread.
So what explains this dynamism of the stock market amid the seemingly endless difficulties of the Indian economy? Last year India experienced its first recession in four decades, with the economy ending fiscal 2021 with GDP growth of (-) 7.3%. There is still massive unemployment, while MSMEs (micro, small and medium enterprises) and the large Indian informal sector are struggling to restart.
The reasons for the somewhat counterintuitive surge in the stock markets lie elsewhere. One of them is the performance of the formal sector of the economy, which manifests itself in the performance of companies. According to an analysis by the RBI (Reserve Bank of India), 2,610 companies recorded an increase of almost 61% in their sales (to Rs 9.87 lakh crore) in June 2021 compared to the same period last year . Even amid challenges such as rising input costs, the corporate sector has been able to protect, and even improve, its bottom line through the use of cost-cutting measures such as large-scale layoffs, wage cuts and redundancies. overheads such as travel.
Another big reason for the dominant performance of the stock market is the interest shown by FIIs (foreign institutional investors): year. âIn August 2021, foreign portfolio investors (REITs) were net sellers, but in September they were net buyers [again]Says Arun Kejriwal, founder of Kejriwal Research & Investment Services. The market saw the injection of a new round of funding.
It’s not even just the big-capital IIFs that are attracted to the Indian stock market; even individual investors, large and small, apparently flock to it. With other avenues of investment like bonds and real estate looking rambling and interest rates on smaller savings vehicles dropping, the stock market has seen a lot of new retail investors. According to a report by the State Bank of India (SBI), 14.2 million new individual investors joined the stock markets in 2020-21, even as the Covid-19 pandemic strained the economy. The number of demat accounts (accounts in which shares of publicly traded companies are held) doubled during the pandemic. According to market regulator Sebi, 10.7 million new demat accounts were opened in nine months between April 2020 and January 2021, compared to 4.7 million new accounts opened over the entire 2019-20 fiscal year.
Massive fundraising in the markets is also fueling the current surge, with 38 companies raising Rs 71,800 crore in this calendar year (through August), up from 16 IPOs (initial public offerings) which raised 31,128 crore. of Rs in 2020. like Zomato, which has performed very well during the pandemic due to the boom in online orders. Private Equity (PE) investors waiting for the right time to leave companies are also part of the mix: in the last 15 months, 75% of funds raised in the market came from divestments by PE investors, explains Kejriwal.
Yet another factor is the growing attention India is receiving as countries implement their âChina plus oneâ strategies. During this pandemic, companies have suffered the consequences of depending on a single source (in this case, China) for their raw materials and other inputs. India is a potential destination for these companies where labor is abundant and cheap, and recent government policy adjustments are likely to strengthen the case. Take, for example, the new production-linked incentives (PLIs) for manufacturers or the decision to remove retrospective taxation and easier deadlines for paying premiums that telecom operators owe the government. Low interest rates in the economy (good for companies looking to borrow, if not so good for risk-averse individual investors who want more from their bank deposits and small savings), the booming commodities cycle Firsts, the stimulus from the Center and the RBI, and the hope that the worst of the pandemic may be behind us are some of the other factors behind the current boom in the Indian stock market.
However, some fear that global events like the Evergrande crisis – where one of China’s biggest real estate developers could collapse if the government refuses to bail it out – and a looming energy crisis as China cuts emissions ahead. the Beijing Winter Olympics next February, could lead to a “correction” (read: slowdown) in the market. But experts like Nilesh Shah, CEO of Kotak Mahindra Asset Management Company, see no return from the Evergrande crisis. âEvergrande is more of a Chinese problem than a global problem,â he says. On the contrary, the crisis may even be an opportunity for India, he says. “It could convince capital distributors that they need to invest in India as an alternative to China.” While he does not rule out a market correction, each correction is also a buying opportunity, he stresses. Others say even a 10 percent correction may not hurt markets much. However, investors keen to jump on the bandwagon should exercise caution: if they don’t have the expertise to pick the right stocks, they should either consider mutual funds aligned with their investment goals or find other experienced portfolio managers to invest on their behalf.