Why was Indian Stock Market Thriving despite Covid-19?
- siddhantrathi39
- Jul 27, 2021
- 9 min read
The Indian stock market is been at its high for the last 6 months in spite of the pandemic. The question which legitimately is conjectured “how and why is the Indian stock market high despite a global pandemic”. This determines valid points to be critiqued answering the research question. However, the Indian stock market did see a precipitous fall with flummoxing news. Perhaps, the Indian stock market has outperformed because of mass investments, government policies regarding covid-19, lesser impact on rural areas, negative sentiments raised against China and the indisputable response from the DIIs and the promoters.
Foreign Portfolio investors are significant for the Indian Stock Exchange, the FPI are important to a developing economy as the businesses should raise investments to support the increasing demand, however, because of insufficient funds, there is a vital need for investors such as FPI and DII. To forestall the misusing of unfamiliar cash, the public authority has spread out specific guidelines and rules. These guidelines are refreshed and adjusted as and when by the SEBI (Securities and Exchange Board of India). The degree to which FPIs/FIIs impact stock exchange development is controversial, however their impressive financial power unquestionably chooses heading of the financial exchange. Since FPIs/FIIs purchase and sell stocks in mass and follow group mindset, supported purchasing/selling on their part brings about a sharp ascent/fall in share market. ,If we look at the historical data at whatever point FIIs have removed cash, the financial exchange has fallen and the other way around. Effect is more unmistakable and direct when they pull out as it makes lists plunge breaking all investments. This cycle gets rehashed occasionally and same can be deciphered by contrasting the FPI information/FII information and the Sensex/Nifty levels. Therefore, if the FII and the FPI are monetarily increasing stakes in the Indian Markets, the prices for the share are ought to rise. Hence, this is an imperative reason for the stocks to be very bullish. So far this year, they have purchased $18.92 billion in the Indian Stock Market. The Sensex and Nifty have risen almost 4.5% each in this period, while in November they progressed 11.4% each. The Sensex and Nifty have climbed almost 75% since their March lows and almost 12% each since the beginning of the year. The kept purchasing revenue by FIIs is a direct result of bountiful liquidity, advancements on the vaccines, indications of monetary recuperation. The FPI’s have recently increased stakes in Bandhan bank by almost 17% from June 2020 to September 2020. This has affected Bandhan banks price to recover from the fall of the Pandemic. Hence, we can conclude that as the FPI increase stake in the Stock Market, the prices of the stocks may increase drastically and vis-versa as they offer and contribute the liquidity cash that a developing economy needs.
Agricultural sector of India is estimated to be worth 273.8 Billion Dollars and the Agricultural sector is the biggest industry in the world. India as a country is lucky to have such a fertile land all over the 28 States, the states being so culturally diverse and mostly 58% dependent on Agriculture yield less income but large in quantity; the country exports spices, tea, coffee and tobacco but large scale production.
- India confines almost 70% the population who are dependent on agriculture, thus contributing almost 17% of the GDP and employs almost 60% of the population.
- Since the Indian economy is mostly based on agricultural sectors, it outlooks stability in the economy and hence the stock market is rising since the remote parts of the country have not been affected so majorly because of the pandemic.
The late chairman of SBI (Mr. Rajnish Kumar) explicitly states in an interview that the Indian economy has a positive factor that the rural economy of India is not effected drastically in contrast to the urban economy. Since, the rural economy contributes to almost 46% of the National Income. Thus growth and development of rural economy and population are a key to overall growth and inclusive development of the country. This illustrates that the total development of the country will still emerge amongst the criteria’s of GDP and per capita. Which ultimately means a rise in DII which will then affect the share market positively. This is an important factor to initialize since, India is “self-sufficient country” with exports all around the world in the field of agriculture and life stock, the share market is likely to be very bullish.
To determine the ultimate outcome of the economic growth, the agricultural sectors play a vital role in the industry. As this proclaims the source of livelihood, contributes largely in the GDP being as India is the second biggest exporter for crops, economic development, food security, and Foreign Exchange Resources.
Even the Agricultural Minister of India (Narender Singh Tomar) said that The country's farm sector is functioning smoothly despite COVID-19 lockdown and there will not be much impact on its growth in the current fiscal unlike other sectors. He backs up his statement with informing the correct measures the farmers have taken “as there has been no shortage of food grains, vegetables, and dairy products. This clearly depicts the unform growth of this growth as well as the government. This will affect the stock market’s growth and will have a yielding session of booking profit.
The Government plays a vital role for the volatile moves of the stock market. A country’s governments shapes the business climate in which organizations work. Government strategies, for example, changes to guidelines, tax assessment, financing costs and spending programs along these lines affect singular organizations' exhibition and their stock cost.
Lately, the finance minister of India “Nirmala Sitharaman” introduced a ploy where the FII/FPI are allowed to hold more stocks in the companies issued in the Indian Stock Market via SEBI (Securities Exchange Board of India). This allowed the Indian stock market to flourish with liquidity cash in the market. As this is an on-going step to emerge as a fully developed countries. Investing should be categorized as a “highlighted” scheme to all the citizens of India.
The Government has planned to incorporate the Stimulus Package in India(when a the government plans to opt for a stimulus package, it increases its spending in the economy to revive the economy in major sectors of the country), as it increases its spending: it increases the employment rate which also escalate the process of generating money; Which then, allows the people to invest in Mutual Funds, as the amount of DII’s enlarge, the stock market flourishes with liquidity cash which proclaims a bearish behaviour in the market. However, there is no proper interpretation claimed, the Barclays said that it will increase the overall GDP by 7%. This demonstrates the incoming increase in the Stock market as well as the economy.
In the stimulus package, the legislative authorities have infused 3 lack crore to the MSME’s( Micro Small Medium Enterprises); helping the organizations that have suffered during the pandemic due to low demand and the lower cash flows. The Finance Minister and the government hope to rejuvenate the Indian stock market due to this. This critiques the increase in the stock market as whole, organization tend to recover together therefore, showcase growth as one which reflects the increase in the stock market.
To conclude, the stock market growth is totally dependent on the Economic Policy of the country which determines the volatility of the market. This can be identified in the past as well; the stimulus package demonstrates the beneficial factors of economy back on track.
China Faces Criticisms
China as a country is a very big competitor to the Indian organizations which surely forces us to develop new/smarter goals to execute better products at a cheaper price. Chinese authorities and companies mainly focus on production at a quantitative scale in particular products. This lets their cost of labour be cheaper since that same person can actually manage to fabricate more items: which instantly gives them a head start in contrast to similar economies like India. Consequently, the country needs to manage and cooperate with this new technique of manufacturing. However, the world is suffering and has been through something abhorrent which was unfortunately started in china and as an UN member, the country should have taken strict measures of informing the outside world. However, the country failed to update the World health organizations. This left the world to be shattered with undecided news of a threatening virus. As a matter of fact, many developed countries have already been on the move of banning Chinese products such as Australia, USA, UK, India and Vietnam. This initiates a wonderful time for India to thrive, since India and China are competitors in mainly all fields; since both the nations hugely produce and export agricultural products, jewellery, textiles, information and technology . There is significant growth in many sectors of India due to boycotting of Chinese products, apps and much more. When the fellow demand is put in a position to actually boycott a particular product by a specific company(country), the host country still needs to balance their demand by either manufacturing their own products or import from other similar exporters. This executes a higher demand than usual which refers to enlargement of production since companies which are based in China plan to move out and really start in other markets like India, Brazil and Vietnam. As mentioned earlier, China was not transparent enough to inform the world with hiding information about this virus which really reflects the way Chinese authorities operate. This causes the company’s manufacturing in China to take in account this behaviour of China and perhaps take move to better markets with more stability between the country and the company. Inevitably, “data shows that US Companies are definitely leaving china” this is perceptively because of the pandemic. Adding to that, a Forbes commentator suggest that post-covid, china will be less alluring to the manufacturing world. For instance, Foxconn’s new iPhone manufacturing plant started manufacturing iPhones at Narasapura recently. The Foxconn plant near Sriperumbudur, 50Km from Chennai, has already begun manufacturing high-end apple iPhones, giving a boost to the “Make In India” project by the prime minister “ Mr Narendra Modi”.
The stock market is also affected by the sudden rise in the demand, this gap of lack of production is really because of the lockdown which placed organizations in a lack of supply: breaking the chain of supply and demand . The instant release/opening of the market forced the companies to order the sufficient supplies that they require to sustain the demand. This gap happens to really increase the sudden demand and therefore the companies open up and expand their consumption scale. Adding to that, since the countries have boycotted the Chinese markets/products which gives India’s manufacturing units a head start with futuristic approaches in the Indian markets. Locally, there has been significant growth because of boycotting Chinese products/gap in the market. The growth is clearly illustrated in the textiles industry; A textile company in Bhilwara proclaims that because of the gap in the production, they are fully booked with yielding orders for almost 2 years. This can be characterized all across Indian; pushing the measures of “Make In India”, and ultimately our final goal “stock market”. Consequently, the country may engage with diverse production orders across the globe, booming India’s brand quality along with diversifying customers. This surely improves the status of the country and the Indian corporations which ameliorates the stock market.
Conclusion:
To conclude, The country is been one of the fastest growing economies in the world and has played a dominant role in the agricultural sector all over the world. Not just that, India has enhanced its educations system, raised awareness about gender equality and economic development. This infers a positive impact on the India economy and then on the NSE( National Stock Exchange). The country is indeed located in a plethora of valuable resources which advances country’s export relations. In regards to Covid-19, Indian economy has suffered a slowdown in terms of export and import; which determined a bearish mindset in the stock market of Sensex reaching 25000 points. Even the countries technological relations have tremendously improved, relating to the citizens learning of opening bank accounts/using d-mat accounts and more savings due to less investment in their business. since it is inferred, the country has an original sentiment of saving income which leads them to invest more in the market. Therefore, the banks see a positive trend, the market incorporates more investments which results to higher market prices. As a country, India is indeed on a trail of wonderful world relations and good image in front of the world. India's growing economy and powerful working class give a rewarding business sector while its bountiful gifted and semi-talented work add to the country's capacity to help mass assembling, get together, and processing. In option to these benefits, India's majority rule texture, with an accentuation on straightforwardness and rules-based worldwide request just as status to meet its authoritative responsibilities without turning to weaponizing exchange approaches would clear route for reasonable exchange. The country has beaten the pandemic by the resilient government policies, FPI negative sentiments towards China and positive opinions on India, less impact of agricultural sector and India’s brand building through vaccinations.
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