The stock market is touching new heights every passing day. With every move, there is growing panic about increased valuations. As the world attempted to recover its economy, central banks opened up a flood of liquidity, leading to a sustained rally in global stock markets. And India has been its major beneficiary.

However, the liquidity dose is still some time away. The Federal Reserve has already announced its tapering program. Back home, the RBI has echoed similar sentiments, taking the first step towards liquidity crunch in its October MPC meeting.

Apart from the liquidity crunch, persistent commodity inflation, slowdown in China, global energy crisis and India’s own issue of coal shortage have kept investors on the hook.

Obviously, with every new high the market is rising, the risk-reward ratio is becoming unfavourable for investors. There is growing pessimism among investors. However, the stock market has refused to budge from its current highs.

This has left investors wondering – what is keeping the stock market high despite the growing pessimism?

increasing speed of recovery

Several indicators are pointing to a strong recovery trend in the Indian economy after the second Covid-19 wave. With this, international investors are showing faith in the India story.

IMF has supported India to reclaim its tag of the fastest growing economy in the world. The IMF expects India to register a growth rate of 9.5% in FY12 and 8.5% in FY13 in its latest report.

Global rating agency Moody’s has also recently upgraded India’s sovereign credit rating outlook from negative to stable. Moody’s has lowered its assessment of the risk of a collapse in the financial system as banks come out of the pandemic relatively spotless.

strong earnings expectation

The pandemic has accelerated the consolidation trend in favor of the organized sector. They have managed to gain market share at the expense of MSME and unorganized sectors.

Most of the Nifty 50 companies are expected to deliver strong earnings despite inflationary pressures. The expectation of a strong festive season is also keeping the hopes of strong earnings intact.

push for privatization

The privatization of Air India has been a turning point in India’s disinvestment campaign. It has built a positive narrative around the strong pro-business mindset of the government.

With the privatization of Air India, the market is also expecting a quick resolution of the impending proposals. In a recent interview, DIPAM (Department of Investment and Public Asset Management) Secretary Tuhin Kanta Pandey expressed confidence that Nilachal Ispat and Central Electronics could be privatized. Completed during the December quarter. He expects the sale of BPCL and BEML with LIC IPO to end by March’22.

Buoyant Manufacturing, Rising Exports

Part of the market boom is also a reflection of the stellar performance of the manufacturing sector. India’s industrial output has been impressive since the lull of the second Covid-19 wave. India’s IIP grew in double digits at 13.6 per cent, 11.5% and 11.9% respectively in June, July and August 2021.

India’s exports are registering the highest ever growth rate due to increase in global demand. Exports for the April-September 2021 period grew 57.50% to $197.89 billion, from $125.62 billion a year ago.

New listings, unicorns: a step towards a new economy

India has seen a flurry of IPOs from the fintech and consumer tech space. These new age tech-based IPOs are expected to help India’s market capitalization grow exponentially as India rapidly moves towards a new economy.

The growing number of unicorns has also given a big boost to India’s growing reputation among foreign investors. As of October 2021, 33 start-ups have achieved unicorn status – the most in a calendar year.

closing remarks

The government has shown a strong intention towards economic reforms with several initiatives like privatization, formation of bad banks, introduction of PLI scheme reforms in the telecom sector and agricultural laws. The market is expecting the momentum of corrections to continue till 2024, which has kept the market resilient despite extended valuations and increased risk of correction.

Source: Trading Economics / Livemint / IndiaToday

Views are personal: Writer- Tushar Vaniawala is a research analyst at Suncorset Investment Intermediaries

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