Markets had closed at a fresh lifetime high Wednesday continuing the gains for three days on the trot. The current rally, barring a small correction Thursday, looks a bit out of place, for, there are no structural or policy level shifts by the India Inc or the government to justify the rally in the markets. Indian markets are reflecting a rally in global markets as investors are betting on improved trade relations and more fiscal measures under a Joe Biden presidency in the US. World markets marched higher after Biden was declared the winner in the tightly-contested race, though President Donald Trump has yet to concede the race. In fact, the win by Biden triggered the market rally last week which has been sustained by a few subsequent developments. An announcement by pharmaceutical majors BioNTech and Pfizer that their vaccine candidate could provide 90 per cent efficacy against the coronavirus turbocharged global market sentiments. Most of the gains by the Indian stocks over recent days have derived from this news. The announcements about the successful phase III trial of Covid-19 vaccine instilled confidence among investors and the possibility of a sustained economic recovery has led to sharp buying in stocks. The surprise win by the NDA in Bihar Assembly elections has also supported the rally. IT, pharma and banking stocks have emerged as the biggest favourites. But will the markets hold this rally or the markets are headed for a sharp correction? Thursday, the bellwether Sensex pared 236 points while the broader Nifty shed 58 points. Is this the beginning of a correction? In the absence of solid triggers or improvements in the fundamentals, the current pre-Diwali rally may peter off before long. The markets may be expecting more stimulus measures from the government in the near future to accelerate the domestic markets. There are talks of the onset of the second wave of the Covid-19 in India. Some of the cities like Delhi are already experiencing the second wave even as states like Odisha are seeing a fall in the daily infection count notwithstanding the government here warning of a second wave happening in the second week of December.
It’s really an uncertain world. Nobody really knows how it is going to pan out from here on. The economy continues to remain in the dumps. The GDP has been contracting. Domestic and international monitoring agencies including the International Monetary Fund (IMF) have predicted a sharp fall in India’s GDP. The RBI Wednesday called out a historic technical recession in the country. GST collections no matter what the government may claim are yet to pick up. Except for a rise in collections last month, every month since Covid-19 broke out, the GST collections have fallen. We are not sure how far the government’s claim of a rise in the GST in October is true. The Centre has defaulted in recompensing the states on the GST count. There are no exciting fiscal or financial measures from the government to bring back cheers to the markets. The manufacturing sector is yet to pick up. Exports have been thinning out. Services are yet to get back their pace. In the absence of a return to robust industrial activities and a boom in the realty sector, the job markets are not going to shine. In the backdrop of this, the current rally in the equities does not seem to be holding out. Most of the present rally is liquidity-driven. There is a lot of money sitting on the fence. As fixed income returns in the US and other developed countries have fallen, large amounts of money are finding their way into Indian stocks which may not sustain for long. With gold rates hovering over Rs 50,000 per 10 grams, investors are turning away from the physical form of the yellow metal. This may elbow out some money to equities.
Earlier this month, the Union Finance Ministry had dropped hints about the government’s intention to bring in another stimulus package for the Covid-hit Indian economy. However, the stimulus by itself may not be a panacea for the economy. The government has already announced two stimulus packages. Union Finance Minister Nirmala Sitharaman Thursday announced another stimulus package worth Rs 2.65 lakh crore, as part of Atmanirbhar Bharat 3.0. But most of the money is meant to incentivise local production. Earlier two packages had meant to help the poor in terms of direct benefits transfer for consumption. Even though it was required in the backdrop of the Covid-19-triggered distress, it did not generate long term capital – a prerequisite for industrial recovery. In light of this, the bonhomie in the equity market seems short-lived.