From the depressing low of 25,639 points on March 24 last year, the day India announced the world’s strictest lockdown, to an all-time high of 50,181 points on January 21— it has been a phenomenal leap for Sensex. The bull run is being attributed to Indian economy’s stronger-than-expected recovery, the rollout of Covid vaccines to finally tame the pandemic, and great expectations from the upcoming Budget. The lockdown was marked by saving and scrimping, while the unlocking witnessed spending and calculated risk-taking as the pent-up demand was released, especially during the festive season. The green shoots are prompting more and more people to invest in the stock markets rather than in tried-and-tested fixed deposits and small saving schemes. According to SEBI figures, around 63 lakh new Demat (dematerialised) accounts were opened between April and September 2020 — a jump of 130 per cent on a year-on-year basis.
The current euphoria, however, might just be a flash in the pan. India’s Buffett indicator — the total value of a stock market relative to the economy’s GDP — has reached a disconcertingly high level of 98 per cent, leaving no cushion or margin for error in case the high-priced stocks don’t perform to perfection. The markets can undergo a major correction if the Budget fails to live up to all the hype. And it will be naïve to bank on the short-lived buoyancy to propel all-round growth.
The RBI has promised a ‘glorious summer’ on the basis of recent high-frequency indicators such as GST collections, but the recouping of massive job losses continues to be a challenge. As per the CMIE, about 1.5 crore jobs were lost in the manufacturing sector during the lockdown quarter (April-June 2020) and the shortfall is still in excess of 1 crore. The services sector also took a big hit and is nowhere near regaining pre-Covid levels. Agriculture, the most resilient sector of them all during the pandemic, is facing disruptions. Amid the Sensex frenzy, investors need to brace themselves for market fluctuations, even as the government should look beyond Dalal Street fireworks and focus on long-term economic stability.