Stocks yield big profits and bigger questions.

There is still reasonable amount of confusion, including 
the US presidential elections, including how we will exit the pandemic.

 

Despite the lockdown, the number of new Demat accounts increased since the Lockdown of March-May, the Indian stock market making new highs.
NSE internet trading volumes jumped 53 percent in April, and indices rose third following the March 23 low.
According to the Securities and Exchange Board of India estimatesthe number of new dematerialized or Demat accounts opened in 2020 
the financial year was at least 4.9 million, rise of 22.5 percent compared to the million Demat accounts opened in the previous year.

At the end of fiscal 2020, the cumulative Demat accounts stood at 40.8 million as compared to 35.9 million at 31 March 2019.

Due to a sharp fall in the price of many quality stocks after mid-February retail investors may have been prompted to buy directly instead of using mutual funds. The steepest market decline in 11 years in fiscal 2020. In FY20, the benchmarks Sensex and Nifty respectively lost 23.8% and 26.03%, the worst since FY09. Steep corrections gave the investors the chance to buy.

Stock Market making new highs, Fund Managers Dilemna.

Zerodha‘s chief executive Nithin Kamath told Online Stock Brokerage that in the past two months his company alone had added 3 lakh, new record customers. He also said that both new and first-time investors constitute 65% of this number.

When asked why the stock market making new highs?

In the last few months, he attributed cash liquidity pumped 
into the market in both the global and Indian markets. 
This is the reason behind the rise.
This trend is taking place in the background of the COVID-19 pandemic, and 
financial markets have seen dramatic drop in prices for many goods since mid-February.
It is thought that domestic savers have been drawn to the stock market.

Is the sharp decline the only reason?

Well, not exactly. Sure the sharp dips in the market have attracted the retired players back in the market but we also have to acknowledge the fact that hundreds and thousands of people have lost their jobs during this pandemic. And, not being able to go get another job might have made them try their luck in the stock market.

Since the pandemic, several penny stocks like Alok, Ruchi Soya, Opto Circuit, etc turn to be multi-baggers while Yes Bank, Vodafone, etc. have seen huge surges, the reason being the speculator buying nonstop by Robinhood investors. Blue-chip companies like Reliance, TCS, Bharti Airtel, etc. have also experienced the same results. This has made stock market trade on a level that it wouldn’t be trading at even in pre-corona times.

Also, if you see, the medical news about the coronavirus seems to be a little bit of a two-step forward, one step backward. Yeah, there is plenty of despair in the news with stories of increased hospitalizations. But the news about the production of vaccines and other therapies continues to be fairly optimistic.

If a vaccine is widely administered late this or early next year, life could return to normal much earlier than expected.

Indian market vs global market correlation.

India’s markets generally reflect the trend elsewhere, essentially demonstrating the worldwide disconnect between capital markets and the real economy. Investors tend to concentrate on alleviating those short-term tail risks, and putting their bets on the return of central banks to monetary-policy easing, ignoring the economic downturn and increasing global poverty.

In fact, from medium-term perspective, the underlying threats to the 
the global economy is getting worse, with the pandemic nowhere near ending. 
The key issue is the unsustainable valuations, given that 
FY21 is sales washout for companies across industries.

Will this momentum sustain?

Experts agree that a delay in economic recovery, demand in the economy, and re-establishment of income levels will lead to stress across all segments — companies, MSMEs, and retail in the quarter ended December 2020.

The inclusion of broader indices – mid-cap and small-cap – alongside Nifty and Sensex is a positive feature of the current rally. On the market, there is a feeling that if a medicinal solution to Covid-19 comes for a couple of months, then there might be a major rally as the market sloshes a massive amount of liquidity.

While retail has entered the Indian and other markets in large way, market observers say that even FPIs and DIIs will  further continue to invest 
as liquidity is on the market and there is consensus that NIFTY‘s earnings for FY22 will be 30 higher than those for FY20.

“This means that there will be an extra 30 percent upside over the next two years,” a fund manager said.

Since interest rates have been low for decade and could remain so, the decrease in interest rates on term 
deposits by banks and on small savings instruments would result in the outflow of debt-to-equity funds by domestic investors. 
Also, as interest rates are low worldwide, FPI capital may flow into the debt and 
equity markets of emerging economies, which could contribute to further spike in stock markets.

What the stock market investors can do? Isuch volatile time.

As the Stock market making new highs.

There are real threats, however, as the pandemic rages longer than expected and delays in medical response, in 
the midst of trade and geopolitical tensions between India-US and China, and China’s regular run-ups with its neighbours.
However, investors are advised to remain vigilant as the economy is struggling globally, while the stock market
making new highs and highs with each day the Volatility Index is only escalating further. 
Listing those gains and remaining in cash position is 
highly recommended for those holding cash position on the market.

 

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Bhavneesh Investo Lingo

 

Bhavneesh Verma

Bhavneesh Verma

Stock Market analyst, Equity-Derivative Trader, Content Writer, Filmmaker. Author of "Do What You Can't", a self-published book.

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