After huge rally in stocks post share market crash of March 2020, many investors have a common question in their mind. Can stock market of India again crash in 2020?
Covid-19 (coronavirus) has not gone yet, people are still hesitating to spend fully, many industries are still very down from pre covid levels, then why stock market has gone up and hitting fresh life time high?
Is this a Bubble? Will this rally in stock market not last for a long time? Can stock marker crash again? Would we get another chance to buy stocks at lower levels in stock market?
Today, We are going to discuss all these things here.
Topics
Reasons behind the rally in stock market from march lows
- Small Investors invested more money during Lockdown!
- Covid-19 led lockdown proved as less worse than expected!
- Domestic Institutional Investors accumulated shares at lower levels
Can stock market sustain at higher levels on the back of these reasons?
What are some things that can led to another crash in stock market?
First of all, let’s see why stock market has gone up.
Why Indian Stock Market recovered from March Lows so quickly?
There are many reasons behind it. Let’s have a quick look at them.
Public or Retail Investors poured more money in stock market during Lockdown!
Before lockdown, everyone was able to use their money in their desired way. Plus, many were busy in their regular routine. But when lockdown was imposed, this routine changed.
Many individuals who were using their money in business, or were not able to use their money lying in the bank account due to daily job/routine work, got time and opportunity to use their money somewhere else.
And most of them choosed stock market as their way to use their money.
Some are using their money for trading and some for investing. But the end result of this is great inflows from retail investors in share market during lockdown.
Source: Financial Express News
Government remain active in handling economy and country
Instead of analysing what Government did to help economy during lockdown or what they didn’t did, i would say Government has been good active in handling economy during lockdown and post lockdown. There has been some positive policy changes from the Government every time since March. This thing actually worked to improve sentiment.
Many Anticipated that Lockdown will be more worse than Financial crisis for economy, but that doesn’t happened!
As lockdown was something new event in the world, many analysed this as the worse thing ever for the world economy. Some were expecting whole economy collapse. And many more wanted to convert all their financial securities into just Cash and only Gold for 2020!!!
This bought panic selling in stock market. But there is an another truth.
“Prices comes in panic selling and panic buying hardly comes again“.
Lockdown really broke some of the Industries. But like we had expected, that thing doesn’t took place at big scale. And that’s a good thing.
There has been positive development in vaccine for Covid-19
Many Vaccines have already entered 3rd phase of Clinical trials. Encouraging results of them in Phase 1 and 2 trials was a encouraging thing for stock market also which helped the market to recover quickly from March lows.
As per latest updates, those vaccines which are showing strong results in Phase 3 trials may be approved for emergency use in some countries where cases are getting out of control. Hopefully, this will help to minimize the impact from Covid-19.
Domestic Institutional investors actively accumulated shares during market crash of 2020
In march, when Foreign Institutional Investors were selling their shares (in huge quantity), Domestic Institutional Investors used that selling as an opportunity to accumulate shares at lower levels.
Domestic Investors were quite confident on the Indian Economy during Lockdown also.
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Beside of what we have discussed so far, there were many more things that helped stock market to recover quickly. But I think these (that we discussed above) were the main of them.
(Checkout this article if you don’t know much about how to pick stocks for long term What can we learn from previous multibagger stocks? )
Now, let’s move to our next question i.e
Is this Upside in Indian Stock Market sustainable?
Investing in stock market directly is no longer a complicated work. That’s why many new individuals doesn’t hesitated to open their trading account during lockdown.
Till Work from Home is active, I don’t think many will really withdraw their money from market. And even if they started going back to offices, most of them are expected to remain active in stock market because they now know the Earning potential from market and how much easy it is to invest in stock market.
On regular basis, government is also doing something to bring more investment in nation, attract investors who are planning to move out of China.
Because of lockdown, Some industries may definitely struggle for longer period of time. But they are unlikely to disturb the whole economy. Other than this, Indian economy is witnessing a good recovery. Many Top companies of India have turned profitable again.
(Checkout this article if you don’t have any idea about how much money is required to do trading and investing in Indian Stock Market)
Considering the fast recovery in Indian Economy and future outlook, FIIs have finally returned to India and have started investing in Indian Stock market actively. In fact, in November month, they have invested over Rs 50,000 crore in market which is a huge number! This is giving the pave for those DIIs who wanted to book profits without affecting the Share prices much.
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Overall, reasons that lifted the Indian stock market from March lows seems like they are not going to fizzle out!
So, is it true that stock market will not crash in 2020 again?
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Here are some reasons that can bring another crash or big correction in stock market!
While chances of another crash in stock market are very low, it is not true that share market can not crash again in 2020!
There are some things that can bring another crash or big correction in stock market.
What if Covid-19 gone out of control in India?
In India, daily number of new cases of Covid-19 or coronavirus has made a top in September. After that, it is on a constant decline. But what if winter helped this virus to bring the next wave in country? Or something else powered this virus to become more stronger in coming months?
Covid Cases were declining in Europe. But in recent weeks, cases have again started rising there. In the initial months of this year (2020), cases had starting rising in Europe first and then they had started rising in India. What if same still happens?
In India, there is no much capacity to handle high number of covid patients. That’s why, if cases started rising again, government may opt for imposing fresh restrictions on humans.
So, there is a risk of what would happen if the situation gone out of control? Again and more strict nationwide Lockdown? How Government will manage huge patient numbers?
Tension among China and other countries
After irresponsible behavior of China towards Covid-19, no major country is happy with China (except few).
US doesn’t want to continue its trade with China. Europe has also started avoiding it. India is already banning them from some of the Industries. Few small neighbour countries are also not happy with the behavior of China.
Recently, when the war between Azerbaijan and Armenia was going on, it was highly expected to spark a fight between Muslim and Christian nations. But luckily, that didn’t happened and war between the two nations lasted for 44 days.
This war was between two small nations. But what if such kind of war took place between two or more big nations?? Remember, geopolitical tensions are on a rise!
After victory of Joe Biden in America, World is expecting some decline in these tensions and stability to gain. But still we are not sure whether it is right to keep such expectations or geopolitical tensions will reach new heights!
Conclusion
Rally in Indian Stock Market from March Lows doesn’t seems a bubble or anything at all. Strong Inflows are supporting the stock market!
Because there are still some restrictions in our country due to fear of Covid-19 spread, spending level in economy may not reach to Pre Covid levels soon. Some industries may take longer time than others to see any good recovery. Therefore, it is possible that earnings in these industries remain soft for longer period. But if money supply/inflows remain healthy in stocks, than stock market will hardly see any significant sell off again.
Covid-19 getting out of control (leading to strict lockdown again or something else) and risks related to any war between nations can trigger heavy selling in Indian stock market.
However, we need to remember that when lockdown was imposed first time, it was a new thing for everyone. We didn’t knew exactly about how much a lockdown can harm our economy. Therefore, we had seen a panic selling in stock market when lockdown was imposed in India.
But now when we are familier with it and know that an economy can recover quite soon if the lockdown restrictions are relaxed, same panic selling may not come again if lockdown is reimposed now.
In Europe, when restrictions were recently reimposed after heavy surge in covid cases, stock markets of them had seen some correction. But now, their stock markets have gone even higher from where they had started correcting. This indicates that if lockdown or similar restrictions are reimposed in our country too, this time, institutional investors may not react too much on that.
So, if lockdown or restrictions are again imposed, then our Indian stock market can definitely see some good correction. But a crash something like of March 2020 may not come again.
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Now, it is time to close this discussion here and end this article.
Hope you make good money from stock Market.
Good luck : )
Also Read: Is it Good Idea to Copy Portfolios of BIG Investors?
Good simple analysis..!!!
Keep it up…
Thank you for the appreciation 🙂