JOIN US2020: A year marked with volatility in stocks
In 2020, as the economy tumbled, many were hoping for a V-shaped recovery. We did have a V-shaped recovery -- it just happened in stock markets, not in the real economy.
On February 20, 2020, Indian markets were still in a bubble of their own, even as coronavirus was quietly spreading its tentacles across the world. Sensex had closed at 41,170.12 points -- just 2.6% below its all-time high of 42,273.87, which it had scaled a month ago. But, across the globe, the reality of coronavirus had started to dawn on Wall Street. After Indian markets closed for the weekend on February 20, the Dow Jones Industrial Index (Dow 30), fearing recession started to crack up. In the next two trading sessions, the Dow 30 corrected by 1.2%. The investors in the US were selling their stocks and keeping their monies at safer places.
On February 24, when Indian markets opened, the same foreign investors started selling their shares. By the end of the day, the foreigners had sold a net of Rs 1,160.90 crore worth of Indian equities. As a result, Sensex fell by 806.89 points (1.95%), which raised alarm bells in Dalal Street as well. On the same evening, Dow 30 cracked by 3.5% -- making the direction markets were going towards, aptly clear. The mess got real on February 28, when Sensex crashed by 1,448.37 points.
On March 5, the markets were again jolted by the fall of YES Bank, which worsened the situation. From February 24 to March 23, when markets touched the bottom, the Sensex was down by 38.78% and investors were poorer by Rs 56.7 lakh crore. The Indian equities were pushed into the bear market zone -- down 20% from their life highs.
In these 20 days, the lower circuit breaker was triggered twice -- an unprecedented development in Indian stock market history. In March, as investors were taking a flight to safety, foreign funds pulled out about Rs 66,000 crore from Indian equities -- a sell-off that had no precedence till then.
The rally
By the end of March, it was feared that India was headed towards a recession, its first-ever in history. Analysts were expecting a long haul in bear territory. But that was not to be.
By May 2020, central banks and governments had unveiled an estimated $15 trillion of stimulus, nearly a fifth the size of their economies. The governments expected this to stimulate demand for goods and services, boosting growth to counter the chilling effects of the pandemic.
But instead, a sizeable chunk of this money found its way into stock markets globally, big parts of it into emerging markets like India, where long-term growth is more promising than in developed countries.
This diversion of funds means that foreign institutions have parked an unprecedented Rs 1.13 lakh crore in Indian equities in just the last two months of the year.
As a result, from its March lows, the equity markets have rallied by a whopping 84%, at a time when the real economy has deteriorated like never before.
Rich get richer
The rally may have helped about 6 crore Indian equity investors build their riches. But this has led to increasing economic disparity: at a time when the salaries of people have been cut due to severe economic conditions, the stock rally has increased the combined wealth of India’s richest 5 by 49%.
Amid the recession, Gautam Adani is worth 3 times more than he was at the beginning of the year, Shiv Nadar has seen his net worth jump 1.5 times, Mukesh Ambani 1.3 times, Azim Premji 1.4 times, and Uday Kotak 1.1 times.
Come 2021, the markets may see a correction and saner valuations. But that is just hope for now.