FY21 was a dismal 12 months from the financial standpoint, and whereas the precise noises are being made in regards to the so-called restoration, none of those are convincing. A full 12 months had passed by and the state response to virus an infection has been the identical: Announce a lockdown. It offers a way of doing one thing because it stops every thing from taking place. However there was one blazing issue on this 12 months of gloom and doom, and that’s the inventory market.

The brand new highs which were reached might be exhausting to elucidate, however it’s there for everybody to see and from a degree of 29,468 in March 2020, a achieve of 70% has been achieved. Therefore, because the economic system collapsed and the virus unfold, if one sat again and invested within the Sensex in March, the good points would have been superb. And what’s stunning is that there have been justifications for a similar by the market movers, which embrace India Inc and the inventory market specialists who discuss to us each day.

Arguably, the March 2020 degree was low on account of the announcement of the lockdown on the nationwide degree. However the Sensex recovered and reached the 32,400 degree by Could, which was when the lockdown was extreme, and the migrant problem was on the fore. As soon as the unlock was introduced even because the an infection instances rose, the market was impervious to those numbers and marched previous 38,000 in August, because the seven-day shifting common of infections have been as excessive as 74,000 that month. There was a nervous sort of stagnation in September when instances peaked at above 80,000. Since then, the variety of instances got here down and the Sensex averaged 50,000 in March because the shifting common within the final week got here again to a brand new peak of greater than 60,000.

Fairly clearly, the variety of infections had little to do with the inventory market actions. The coefficient of correlation between the 2 variables was +0.24, and whereas the extent was low, the constructive signal is what upsets rationality. It’s clear that the market does probably not trouble in regards to the degree of infections, and whereas there are a few periods that witness a decline within the Sensex, it’s again to enterprise; it’s forward-looking.

When the lockdown was introduced and the market went down, one by no means knew how issues would form up. The fast indicator that was out there earlier than company outcomes got here out and the GDP estimates got here in associated to tax collections, which have been abysmal as no exercise meant no earnings for the federal government. Company outcomes got here out by August and these pointed in the direction of the downward route. But the markets have been constructive. The sharp fall in GDP additionally didn’t result in any correction, and whereas September was roughly unchanged, the spirits have been nonetheless undaunted. Since then, there was an upward transfer culminating within the 50,000 degree in March.

If one have been to attempt to rationalise these actions, it needs to be put within the context of forward-looking views. That is the place the language spoken by India Inc throughout the announcement of their outcomes and the relentless recommendation given within the media on numerous sectors and shares make a distinction. The truth is, the specialists within the markets are actually market-makers as they preserve the spirits up and are at all times constructive. That is rationalised by the earnings development which is in contrast with the worth and the hole offers scope for the rise in costs. This isn’t simply an Indian phenomenon, but additionally a worldwide one, as all inventory markets have labored the identical manner. A whole lot of drivel involving the form of the restoration is mentioned the inventory markets transfer on comfortably, and by the tip of the day the 2 reinforce each other. Simply as there may be the reason that the Ok-shaped or V-shaped restoration is driving the market, the specialists on the opposite aspect use market actions to justify the view that the restoration is imminent.

In India, no less than part of the rise within the indices could possibly be attributed to the an infection instances taking place. However within the US the markets did nicely however the an infection ranges going up, as two different elements performed a job. The primary was the result of the US elections, and the second was the expansion prospects of the economic system that have been revised upwards. This was contemporaneous with the creation of the vaccine, which introduced plenty of hope and good points available in the market, and this thought nonetheless is driving markets in all places. The second wave in Europe was fairly extreme with the responses being comparable with lockdowns being introduced. However the markets moved on.

The place will the market go? The Q1 outcomes of corporates have been downbeat with gross sales and income falling. Q2 noticed gross sales fall however income rise, as corporations lower on prices, particularly labour prices. Q3 noticed a marginal development in gross sales however income continued to zoom, which gave a way of sharp restoration. This fall will in all probability be a repetition of This fall with a greater gross sales development because of the low base impact of Q4FY20. The bulletins of localised lockdowns shake the market however do probably not change route for quite a lot of periods. The market is pushed extra by the vaccination numbers and the excessive frequency indicators similar to GST collections, PMI, e-way payments, and so forth. Subsequently, it seems to be unlikely that the Sensex will slip an excessive amount of for a chronic time period.

The truth is, company outcomes shall be greater than constructive within the first two quarters of FY22, which is nice information for the market. There could be sectoral imbalances because the providers segments will proceed to be hit adversely. However the Sensex is dominated by the blue-chip shares within the manufacturing and IT sectors.

Curiously, all by the 12 months, the markets weren’t an excessive amount of enthused by the federal government insurance policies because the sequence of bulletins made underneath Atmanirbhar Bharat marketing campaign drew an detached response. The identical was with the Union Finances. Subsequently, there appears to be extra religion put within the personal sector and animal spirits than the insurance policies of the federal government, which is a shock. However then the historical past this 12 months of the inventory market has been certainly one of surprises for certain!

The writer is Chief economist, CARE Rankings, and the writer of ‘Hits & Misses: The Indian Banking Story’. Views are private