The year 2020, was a grim year where the most unexpected things occurred and brought the nation’s economy to its feet. Despite the pandemic causing plenty of problems for millions of people throughout the world, the stock market seems to have remained stagnant and has kept its stronghold in how it functioned before the pandemic.
India’s GDP has declined by 24% from April to June and is among the worst-hit countries in the world. Though one part of the financial sector had its impact but then recovered considerably in months. It’s none other than India’s stock market, where the Sensex back in March 2020 was 25,900 and rose to 39,100 in September 2020.
It’s incredible that the stock market took a plunge but recovered immensely which proves that the companies are resilient to change. There was a significant rise in trading activities that in turn benefitted the online stock brokers in India. Even then, despite several economic sectors of the country showing considerable levels of losses and a steep increase in unemployment, the stock market hasn’t budged a single bit.
Wondering how it’s all possible? Baffled to see that the stock market continues to trade like nothing ever happened to it? To get your answers, we have enlisted several reasons for the same.
Reasons for Stock Market Rise
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The resilience of the Markets
India announced a nationwide lockdown on 25th March 2020, and the following day it saw a whitewash of profits of several companies. Businesses lost a lot of market value in the financial market and impacted the fiscal year 2020-21 extensively. Regardless of the economic slump, the country was facing; the stock market saw a notable change where the Nifty and Sensex did rise to a certain margin after falling considerably.
Despite having significant setbacks, companies trading in the stock market found ways to streamline their services and continue operations indicating growth and dedication to support their market value. The credibility of continuing from a “Work from Home” concept succeeded in generating profits. For those who depended entirely on manufacturing, face-to-face sales orientation either implemented a different way of conducting business. They did face losses but did couped up later.
But with every crisis, countries & businesses have adopted ways to streamline their operations and perform remotely. With the same implemented on MNCs and other conglomerates, it was evident that the market would relapse into a “V” shaped recovery. Companies found their momentum in performing the same how they did before.
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Profitability
Companies listed in the stock market have to perform quite tediously and keep in mind that any wrong move could affect their market price and valuation. Similarly, when the pandemic hit, it was evident that they had performed their best in delivering services despite having the economy hit hard.
For the same, several industries outperformed many and posted some promising numbers. Despite all the hurdles and hassles, positive news and boasted numbers created a steep surge in their stock prices. A few examples are illustrated below.
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Reliance industries
It’s a mystery as to how Reliance never fails to impress no matter what. As of now, a single stock price of Reliance is trading at 2,100 rupees. Before the lockdown, it was trading at 1,000 rupees per share. However, the increase is all thanks to the surplus investment deals it received from Facebook, Google, KKR, and more into the Jio Platform, where it raised more than $10 billion. Even the acquisition of the Future group did fluctuate its stock prices considerably.
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TCS
TCS showcased some impressive growth ever since the slump of its shares being traded at 1,700 rupees back in March 2020 but being traded at 2,370 rupees in October 2020. The increase is all thanks to the strategic changes implemented in the company. Its deal with Maurice, adopting Quartz (Blockchain-based solutions), and more have fluctuated the prices in the right direction.
- iii. Biocon & Sun Pharma
The above-given names are different entities providing a similar service. They are pharmaceutical companies that are specializing in the development of the vaccine to fight the Corona Virus. Hence, any positive or negative news could affect their stock prices. These boasted some impressive profits and made their stock relatively stable over an extended period.
Things are quite volatile where every piece of information does matter in depicting the share price movements.
Moreover, hundreds of such companies have gained a lot from the pandemic, which has resulted in the stability of the stock market. Also, good news can inflate the share prices, which results in a more significant buying spree from investors, and not-so-good news results in the downfall of stock prices.
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Alternate Income Source
It means to say that the stock market is seen as a place where investing and trading with the right kind of stocks/shares can help generate profits, primarily when the pandemic has caused many people in the country to be unemployed. Unemployment rates reached 26% in April 2020 but came down to 6.7% in September 2020.
With no income source and what little savings a person might have, trading in the stock market might be a fruitful venture. In turn, from December 2019 to June 2020, the number of Demat accounts opened rose from 3.9 million to 43.2 million accounts. In March 2020, after a nationwide lockdown was announced, there were about 2.4 million accounts opened across various stock brokering companies nationwide.
Millennials are the strong driving force in the stock market. With such a steep surge in trading, the stock market has recovered from the blow helping companies in performing their best and keeping investors, traders, and shareholders happy at the same time.
Conclusion
Despite having a “V” shaped recovery in the country’s economy, it’s quite hard to depict when the effects of the pandemic might wear off. But one thing is for sure; the stock market would be highly affected depending on the government intervention, economic recovery factors, and medical advancements.
Furthermore, stock-specific trading such as in the hospitality and entertainment industry is yet to recover from a drastic setback. However, the major part of the recovery is all thanks to the influx of liquidity into the economy to sustain such growth.
For those interested in learning more about the stock market, FinGrad provides stock market courses. Take FinGrad’s mutual fund course if investing in the stock market seems intimidating.
