By: Fatima Hasan
Every now and then, the stock market is in the news. We often hear that the indexes – Sensex, Nifty– are falling or sometimes rising. Ever wondered why? This is because whenever there is fall or rise in the value of money or some contingency event happening like Corona virus that affects economy of the country, it takes a toll on stock market too.
The performance of the stock market mainly depends on the economy of the country. When there is sound economy and strong currency, the transactions in the stock market are on the surge. And it contributes to the GDP by influencing the financial conditions and consumer confidence as the bonds are purchased by investors and the funds are used for business expansion and growth–thereby also boosting the GDP.
Since last year, the value of rupee is falling against the dollar and thus it may have affected both the internal stock market and foreign stock market investments. The foreign investors may not want to invest in at a time when the country’s currency is falling as they may not get the same value or rate of profit when they sell the bonds. Nonetheless, this may also concern the domestic investors. But having bullish stock market is essential for a country in times of economic crises. Foreign investments in such case will encourage the domestic investors.
BULL OR BEAR: how do they react in fluctuating indexes …
The bull is the person in the stock market who is optimistic and will continue investing irrespective of the economic situations prevailing in the country. This, in turn, will keep the stock transactions afloat and bullish market is of long run in nature. Whereas, on the other hand, it is bearish market wherein the bears only invest to earn profits and are pessimists. They engage in short term transactions and tend to sell to get profits whenever they sense the fall in prices. Hence, having more number of bulls is a plus point for any country to boast its economy.
In India, the economy may be faltering, but its $2.1 trillion stock market has been powering to new highs as foreign investors pile into country’s shares. Thus, it can be said that the brunt of economic crisis did not show up on stock market. Whereas the domestic investors remained buyers of equity funds unfazed of declining economy. Interestingly, the surge in the stock market in the second quarter of 2019 in the wake of economic crisis was deemed as good. There were prospects that India may see turn around with further increase in stock market in early 2020.
However, considering the present international health emergency due to COVID-19 pandemic, let us analyze the current status of the stock market. When the Union budget was presented for the financial year 2020-21 in February, Nifty fell by over three percent (373.95 points) while Sensex fell by two percent (987.96 points). This fall could be because of the economic crisis in India compounded by the global breakdown amid Corona virus pandemic.
Subsequently, the estimated decline rate of both Sensex—1,448 points and Nifty- 432 points—was due to growing global tension caused by Corona virus. Both BSE and NSE fell for the entire five days of the week ending with the worst weekly fall since 2009. In March, markets fell by around 1,000 points and wealth worth several lakh crores of rupees was wiped out wherein the Sensex fell by 1,941.67 points, while Nifty broke down by 538 points. Further, the recent Yes Bank crisis also made the stock market fall. The markets ended in red with Sensex closing on 35,634.95 and Nifty on 10,451.45. Sensex ended to 33-month low of 32778.14.
On 23 March 2020, Sensex lost 3,934.72 points (13.15 percent) and Nifty plunged 1,135 points (12.98 percent) as the Corona virus-led lockdowns across the world triggered fears of a recession and crash of stock markets. These are now the lowest levels since 2016. Once the lockdown is over, there may be some consolidation at or around the current levels. It may take time for Indian stocks market to consolidate but it will soon recover if the RBI and the Union government take right steps to uplift and bulls take the lead in the market. (eom)