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Sensex scales 50,000 points for the first time ever

Factors that led to the surge and key takeaways for the retail investor

By Ann Mary AlexanderPublished 3 years ago 5 min read
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Sensex scales 50,000 points for the first time ever
Photo by Chris Liverani on Unsplash

For the first time since its inception, BSE Sensex, the 30 stock benchmark index, scaled 50,000 points on January 21, 2021. Sensex surged over 200 points and reached an all-time high of 50,126.73, while the Nifty 50 index rose to 14,700 for the first time ever.

The 50,000-mark seemed like an impossible task since its deep plunge to a four-year low of 25,638.90 during March 2020 when the news of the Covid-19 hit the markets, and the nationwide lockdown was announced.

As per a report by Deccan Herald, SENSEX, also created another milestone of the fastest 10,000 points to be scaled. SENSEX took 7507 days to move from 100 points to 10,000. In 2007, SENSEX took 633 days to move from 10,000 points to reach 20,000 points. It traced the 40,000 mark 610 days back. The official Twitter account of BSE shared a graph showing the rise and fall of the SENSEX throughout the years.

BSE Midcap and BSE SmallCap indices surpassed the benchmark index in the last 10 months and climbed 99% and 112.56%. Heavy buying was also seen in auto and telecom stocks.

Factors that led to the surge in market prices

  • Favorable Global Cues

The new US administration led by President Joe Biden gives hope to investors worldwide. Expectations of a big economic stimulus and high fiscal spending made the market more optimistic and added to the growth. President Biden announced a stimulus package proposal of $1.9 trillion to tackle the economic fallout due to the virus and ensure speedy vaccination.

Dow Jones, Nasdaq, and S&P 500 closed at all-time high points after President Joe Biden took oath as the 46th President of the United States of America. This optimistic attitude of the global markets led to a favorable rally in Indian bourses such as Nifty and Sensex.

  • Positive Expectations from Upcoming Budget

In India, the expectation of positive announcements aided by bold economic reforms from the Upcoming Union Budget of 2021-22 improved the market sentiment.

  • High Investment by FIIs and FPIs

Heavy investment by foreign institutional investors (FIIs) and foreign portfolios (FPIs) also backed the market rally. Foreign Portfolio Investors (FPI) were highly alert and engaged in massive selling during the early half of 2020.

However, since the second half, they have been buying consistently in the Indian equities market instead of major outflows in the Asian market. As per NSE, FPI’s net equity investment was around Rs.1.5 lakh crore in 2020. FPI’s are still on a buying spree even in the year 2021, and they have invested about Rs 14,750 crore in Indian equities in January till date.

  • Increase in Discretionary Spending

Employees with high skills and high-income jobs had the privilege of working from home during the lockdown, and this improved discretionary spending by high-income households.

  • Rebound in Corporate Earnings

The recovery in corporate earnings in the second quarter of FY21 showed that India was set for a major comeback since the GDP contraction by 23.9 per cent YoY in the first quarter of FY21. All these factors gave a major boost to investor confidence.

Top IT companies such as TCS, Infosys, HCL Tech, and Wipro reported earnings more than what was expected as the demand for their services increased since the spread of the virus. The earnings report of other companies in the third quarter have been quite encouraging so far and is expected to be even better in the next quarter.

  • Increase in share price of Reliance

Reliance shares surged 1.7% after SEBI gave approval to $3.4 billion deal to buy Future Group's retail assets, which came as a blow to Amazon’s efforts to block the agreement. BSE also granted a ‘no adverse observation;’ report after the deal was approved by SEBI.

  • Reduced Daily Covid Cases and Ongoing Vaccination Drive

Investor mindset improved after the Indian government managed to tackle the spread of the coronavirus. Daily Covid cases decreased considerably from more than 1,00,000 reported cases to around 15,000 per day, which increased the hope of a quick economic recovery. The speedy distribution of Covid vaccines also added to the positive attitude of the investor mindset.

  • Direct Participation of Retail Investors

Another important reason for the market rally has been the direct participation of the retail investors. Market analysts opine that a small correction of about 4-5% has been absorbed in the market as those investors who had made profits earlier have been investing further. However, a bigger fall may create a sense of panic among the investors and lead to a cascading effect.

Key Takeaways for Retail Investors

Investors are expected to invest tactfully in the stock market as the market experts believe that there will still be a surge in prices. While some analysts believe that since the current rise in the market is backed by liquidity and upswing in investor sentiments, a correction may occur in the short-term.

Thus, it would be preferable if investors invested in other assets apart from equities such as gold, real estate, or even debt-funds. Some analysts believe investors should not change their trading strategies as any market correction that may happen in the future would be due to profit-booking. Still, it would easily be bought into due to global liquidity.

Retail investors are expected to invest with a long-term perspective and invest in those stocks and sectors which have not yet scaled new heights as there may be a future surge in prices due to recovery of the market that may happen in the second half of the year.

Ending Note

Market experts believe that the current market rally is mainly due to the central banks' relaxed monetary policy. The massive liquidity injection and historically low rates of interest in response to the economic breakout due to the pandemic have strengthened the market and attracted foreign investment.

Owing to the improved market recovery, Indian bourses are expected to maintain the current momentum. However, the speed of the current vaccination drive, reforms in the upcoming Union Budget, and corporate earnings report play a major role in determining the market's future trend.

As the Indian government had already announced packages to improve supply since the pandemic, markets are eagerly waiting for the steps to be taken by the government to boost demand. Thus experts believe that the current surge in the market before the budget announcement will not disappear as long there is liquidity injection.

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About the Creator

Ann Mary Alexander

Published author.Loves to write about life,emotions and happiness.Ultimate Captain Jack Sparrow fan.Enjoys long walks.Dog lover.Loves fiction.

Twitter : https://twitter.com/beingann_

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