There are academicians and there are statisticians. The former have, for ages, tried to make sense of market behaviour and the latter have, for years at a stretch, tried to find some degree of correlation between the growth of the economy and the stockmarkets.
Sad to say, neither reliable correlation coefficients nor rational predictable models of forecasting investors’ behaviour have been found. The variable sentiment is the culprit. It refuses to fit into any quantifiable bucket. And unlike the economists who love to qualify, other things remaining constant, there is nothing constant in the markets.
The optimism witnessed in early January which saw the markets reach an all-time high when the Sensex reached 42274 was unfathomable to a rationalist as the economy was already showing signs of slowing down. When fear overtook rationality during the Covid-19 pandemic, the market dropped to a 52-week low of 25639.
Currently, the Sensex has recovered almost 50 per cent of the loss and is hovering around 38000. At this level it is less than 10 per cent below the January highs. The pandemic is still spreading and has already crossed 20 million and is growing at over 50,000 patients a day. Indian operators of yesteryear, used to be fond of educating novices: “Respect the price, don’t try and rationalise the price movements.”
In March the FPIs of one of the major market movers had withdrawn nearly Rs62,000 crore from the markets. To give a perspective the average annual investments during the calendar years over the last 10 years, 2010-2019, were R53,600 crore. In May, they sold under Rs7,000 crore. The FPIs have since returned to make up for the lost chance and pumped in Rs36,000 crore in June and July. August has just started. The world over, Indian markets are recovering faster than the other BRIC countries except China, which has seen a 16 per cent YTD rise. Brazil is still down by 32 per cent and South Africa is down by 22 per cent.
Reliance Industries was, of course, the turning point and the huge amount of money from marquee investors changed investor perception about Indian markets. The only company to have raised money at the height of the Covid crisis both from corporates overseas and India besides inspiring investors, also proved that there was ample liquidity with investors. Post the initial panic, investors were looking at picking up quality stocks at bargain-basement rates. It is but natural that given the uncertainty of the pandemic, money will flow into the top 20-25 stocks. It stands to reason that in uncertain times you go for the most liquid asset, like gold or their cousins, gold-like company shares.
Unlike the popular perception, it is not banks and the finance sector but the IT sector which has been at the forefront of the rally this time round. The IT index has gone up by almost 68 per cent from its low while the Bankex has gone up by 33 and BSE Finance by 36 per cent. Infosys in IT has been at the forefront of the rally. Its shares have the highest free float of 87 per cent and it is the biggest mover, often interchanging place with Reliance Industries. Infosys has gone up from a low of Rs511 to Rs951 which is an almost 87 per cent rise. Reliance has gone up by 147 per cent and is currently at Rs2,146. While banks and finance have the maximum weightage amongst the BSE Sensex, IT may not be far behind, considering its contribution to growth. In the month of July, Nifty IT gave the highest returns of 23 per cent. All others, except pharma, were in single digits.
-
A bounce in its step. Picture credit: Sanjay Borade
