MUMBAI: In a perverse kind of way, the coronavirus pandemic may be the best thing that happened to the Indian stock market, leading to one of the biggest bull runs in recent history with the BSE Sensex scaling the 50,000 point mark and doubling from the lows witnessed a few months back in March 2020.
As convoluted as it sounds but the BSE Sensex has created one of the biggest repositories of wealth in history for institutional and retail investors within months, because of the lows generated by the coronavirus pandemic.
And at a time when unemployment was at a high during the pandemic and small businesses were languishing the bullish stock market became the lifeboat of millions, as record first time investors entered the stock market.
The winning streak -- the last lap of 5000 points -- came in just 32 trading sessions.
Indubitably, positive global cues and expectations of healthy quarterly results, along with hopes of a supportive Union Budget FY22, powered the ascent of India's barometer index -- the S&P BSE Sensex -- to cross the 50,000 mark on Thursday. However, the index dipped below the psychologically important mark due to profit booking at the end of the day's trading.
Expectations of an even faster economic recovery on the back of the vaccination programme have been cited as other factors for the up-move. Besides, easy liquidity conditions across the globe have been funnelling into India's market, as FIIs shore up their stakes and pump-up this rally.
Hereafter, two things can happen: One, if the economic growth and corporate earnings recovery, currently underway in India, gathers momentum, markets will remain buoyant and can go higher. There are optimists who believe that the next few years are likely to witness sustained impressive GDP growth rate and corporate earnings. If this scenario pans out, the bull may charge higher from here. On the other hand, if growth recovery loses steam domestically and inflation returns in the developed world forcing the central banks to exit from the loose monetary policy, there will be capital outflows from emerging markets like India leading to sharp corrections, even big crashes.
So, let's keep our fingers crossed.
The surge in the markets was largely fuelled by the foreign institutional investors and their inflow was recorded at all-time high levels. India received around $22.5 billion or Rs 1.7 lakh crore in equities in 2020. The net inflow of foreign portfolio investment so far in the current financial year stood at over Rs 2.38 lakh crore, according to NSDL data. This is the highest FPI inflow ever in a fiscal.
The surge in foreign funds came due to high level of liquidity across the globe on the back of stimulus measures and zero or near nil interest rates in several countries in major economies, including the US and European countries. It was because of the FIIs that the Indian equity market was able to defy the negative sentiments amid the pandemic.
(With IANS inputs)