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| Hello, Tauktae cyclone wreaked havoc in several states across the country. But it also brought glimmer of hope for the stock market. In the last four trading sessions, the blue-chip index - Nifty 50 - grew by 419 points, jumping back to 15,000. The benchmark index, Sensex - also grew by 1550 points leaping to the golden jubilee mark of 50000 after forty-nine days. This rise of the stock market can be attributed to several factors. These factors come in all shapes and sizes. Let's examine them one by one. Downward trend in the Coronavirus cases  As you can see in the image above, the curve has started to move down. Last month, IIT scientists had predicted using a mathematical model that new cases will start to decrease by May-end. But the fall has come earlier than expected. Needless to say despite earlier horrors of the second COVID wave, the country is probably seeing a peak out of cases and the trajectory in next few days could be downward. Last month, markets fleetingly turned red due to the rising concerns around the second COVID wave, shutdowns in several states and all-time high COVID cases. However, this month, the market turned green. It has taken heart from the government's decision to open up the vaccination drive for all adults in the country, and hopes of the situation getting back to normal in a couple of months. Government took several steps to increase the oxygen supply. Some of them are-
Strong earning season Q4FY2021 So far 1/3rd of BSE 500 companies have announced their results. Against revenue de-growths of 4.1% y-o-y in Q4FY20 and 24.6% y-o-y in Q1FY21, companies reported growth of 16.4% y-o-y in Q4FY21. IT sector and certain sections of consumption (essentials and food products) did well. Cement and building materials saw good growth owing to increased demand from infrastructure projects and pick-up in real estate. The companies cumulatively posted 31.3% y-o-y EBITDA growth. Profit after tax (PAT) also grew 54% y-o-y. On the whole, better preparedness owing to experience of last year have helped companies tide over Q4FY21 better, based on results announced till date DIIs on a buying Spree   Post October 2020, the markets soared and reached their all-time high levels. The reason behind that strong run was inflow from FPIs. However, the current resilience is supported by domestic institutional investors - mutual funds, insurance companies among others. As you can see in the above graphs, when FPIs sold a huge chunk of their investments back in March 2020, DIIs emerged as net buyers. A similar situation occurred during the second COVID wave. Over the past two months, panic caused due to rising coronavirus cases in the country and crippling healthcare system, FIIs started selling. However, DIIs once again started investing. For the first time in seven months DIIs have overtaken the FPIs in net investments in Indian Equities. Over the past 10-20 years, stock markets have benefitted from India’s structural growth story, however, short term movement has been volatile. But one can certainly take cues from the above illustration that the Indian economy is preparing for a long jump over the next 5-10 years. Needless to say that this jump will also pull the markets up. Will there be a correction? A lot of you are asking if there will be a correction. The current level of the market is not euphoric. It's not an invisible balloon that can burst any time. Yes, FIIs have been pulling their investments out for some time now. The main reasons for this was crippling healthcare system. But considering the recent development - a dip in daily cases, improved recovery rate in coronavirus patients - as of today we don't see a major correction coming in the market, notwithstanding near term volatility. FIIs have gradually started buying into Indian equities as daily cases decline. To Sum it up If you have read our newsletter you would remember this quote by an American author Hal Borland. The quote states that after the current gloomy situation, we can still have hope and faith that good will come to us. We wrote this in our newsletter and we see that becoming true. Cases have started declining, recovery rate has improved, and investors have renewed their confidence in the market. The battle against the Coronavirus is still not won but we are getting there. We will start to breathe easy soon. Investors should not look to speculate in the market at this moment. If you are an investor, hold on to your investments, provided you have invested in fundamentally solid businesses. If you are looking to start investing, now is the time. Fresh investments can be made for the long term in quality businesses. Because, fundamentally solid businesses can tide over any storm Thankyou Staysafe |
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