Impact of Second Wave

At a time when economic activity in India has been derailed by the ongoing Covid -19 crisis, the country’s equity market seems to be riding the second wave confidently.

But how is the domestic stock market performing well on a regular basis when economic recovery has been threatened by the second wave ?

Here are some possible reasons:

1) Strong Q4 Results and Optimistic Investors:

Strong results by major companies are a key reason behind market optimism. In view of strong earning season, investors are hoping that most of the stocks will continue to perform well in future well beyond the second covid wave.

Positive global cues also have a part to play .The rising global demand outlook, the rise in commodity prices and availability of liquidity has taken the immediate focus away from the surge of Covid – 19 cases in India.

2) RBI’s Booster Shot:

After RBI announced a slew of measures to deal with the ongoing Covid-19 crisis, financial and bank stocks have been gaining.

3) The structural liquidity support:

The massive Global liquidity injection and expectations of a V- shaped recovery prompted a rally after sharp correction when Covid-19 outbreak happened last year. More than earnings, what seems to be lending a solid support for the markets are the supply side factors. A recent study of RBI analyzing equity return data of 15 yrs suggest liquidity support to have a greater bearing on equity prices compared to economic prospects. While the surge in FPI(Foreign portfolio investment) flows has been icing on the cake post pandemic, domestic liquidity has also provided solid support to equities.

4) Rise In Retail Investors :

We have seen the rise of retail investors throughout last year. The pandemic has further bolstered the so called “equity cult” amongst retail investors with the past year seeing the opening of 1.43 crore demat accounts as against 50 lakhs in the preceding year.The new generation retail investor is aware of the economy , has access to research and market news and understand the market terminologies better.

However suggestion would be to remain conservative and long –term in their approach, rather than taking leveraged investing bets. Also, if the market turns volatile one may keep on investing through the SIP route in mutual funds. In the long –term the India growth story remains intact and will continue to attract global investments. Once vaccination is complete, India will rise faster than most emerging economies.