2020 might have been a year like no other for a lot of us and one thing that may have boggled your mind (or maybe not if you didn’t notice) was that while the world economy is in shambles since March last year, the markets seem to be on a roll after the initial blip. The recovery in all major indices has been one of the sharpest ever seen(if you don’t know what an index is click here).Surely at a time when the nation’s GDP shrank a record shattering 23.9% during Q2 there should have been some impact. Seems very counterintuitive doesn’t it? So what is fuelling the markets in times like these? This is what we are looking at today.
Well contrary to what you might imagine Stock Market highs during recessions are not an uncommon sight. In fact, since the WW2, stocks have risen during the past 7 of 12 recessions. And this time too the market has had his own reasons :
1. Dominance of few sectors
When all hell broke loose back in March 2020 investors were scrambling to find any reason to not only recover the losses but get the bullish trains back on track as well. Low and Behold we saw quite a few market favourites spring up. First up was the long dormant pharma which blew up like nothing ever before. With business opportunities galore in the time of a pandemic, pharma was back with a bang. Second came the fundraising spree of the goliath RIL. With each new investment announcement in Jio platforms, the stock kept on soaring to new heights and since companies like RIL have such a large market cap, it drove the index with it as well. And other sectors like tech where business wasn’t affected much kept doing well true with investors lining up to invest in such stocks.
2. Govt support and stimulus
With lessons learnt well from the not too distant 2008 crash, Govts have been proactive in encouraging economic activity across the world. They have done everything in their power to spur confidence back in the markets and investors too have responded in kind. Liquidity infusion by central banks had helped keep bond yields low which in turn forced investors to look towards markets.
3. Horde of new Individual Investors stepping in
What’s more there has been a bunch of you guys stepping into the markets for the first time. All brokers reported record new registrations on their platform and most of them included young millennials. And indeed the markets hit new records in terms of daily transactions and even foreign investment platforms were seeing a massive surge in users.
4. Hope is what keeps the world going
Finally we will be honest and say that not all growth can be put down to facts and numbers. Sometimes everyone just holds on to some hope that things will get better. And indeed some experts agree that while everything might still look bleak currently, there is some promise that things will get better sooner rather than later. The stock market isn’t just a reflection of how are things presently but also what people are expecting for the future.
There is no denying that times have been brutally tough for everyone but the recovery has been equally impressive if not more. And while no one can be sure whether we can continue to see this growth for the coming years or not, almost everyone will agree that the outcome could have been (and might still be) much worse.