Has the stock market lost its mind, or is there some basis to the market boom?
The Bombay Stock Exchange’s headline index, the BSE Sensex, crossed the 50,000-mark for the first time on Thursday. While the index of India’s top 30 scrips crossing this psychological mark is being celebrated, there are those who are questioning why the stock markets are performing so well despite the economy declining this year and millions of Indians — both blue collar and white — losing their jobs and failing to meet their loan obligations. But this disconnect between the stock markets and economic reality is not just an Indian phenomenon. Across the world, despite economic headaches, stock markets have shot up. Certain scrips such as those in the aviation sector are trading at lifetime highs; even many scrips in the automotive sector are booming. Research heads attribute this breach at the opening bell on the back of better-than-anticipated corporate earnings and sustained buying by foreign institutional investors. Also, it is said, the market sentiment has turned positive largely due to the amalgamation of at least three developments that took place in the past couple of days. One, Joe Biden has been sworn in as the 46th US President without any untoward incident being reported, with the hopes of an entire country now riding on him, and his inauguration is largely considered to be good news for India; two, the Union Government has made an offer to the farmers agitating on the Capital’s borders to suspend the three controversial farm laws for 18 months, which may likely result in some form of tranquility for the Government ahead of the Republic Day celebrations. Three — and this is apparently the most cheery aspect for cricket-crazy India and, by extension, for the bourses — Team India’s recent and emphatic win over the formidable Australians at Brisbane which helped them retain the Border-Gavaskar Trophy. And there may be still better news on the horizon as market analysts feel that the Sensex can hit the 1,00,000-mark by the year 2025 as we’ve entered a super-cycle for Indian equities, just as the benchmark index had seen in the year 2003.
That said, one must not forget that the headline indices of the major stock exchanges have only the largest, most traded scrips on the markets. These large conglomerates — such as Reliance, ITC, Infosys, Tata Consultancy Services and Maruti — tend to outperform the markets even in hood times. The broader markets are still slightly weak according to some and many smaller scrips, particularly public sector enterprises, are still suffering when it comes to stock prices although demand is apparently picking up. So should one take the rise in the index as a precursor to economic recovery in the coming year? Maybe that is indeed the case; as the vaccination drive picks up speed and the demand for services and goods increases, 2021 might be a better year than the pessimists say. That said, the disconnect is also a reality and while punters still will make money on the markets, the general public should be wary. The markets are rising on a wave and waves have a bad habit of coming crashing down. Investors have to be very careful about putting their money down in the markets when several key sectors of the economy are far from recovery, particularly the real estate sector. If those who would like to invest want to enter the markets maybe going down the mutual funds route, they should be wary of the markets and be prepared to take the risk of losing money. So the 50,000-mark is huge, but celebrating in advance must be muted. Some people have made a lot of money in the markets but the public should be careful of putting in their money there.
