BSE Sensex, India’s benchmark stock market index, reached an all-time high of 46,103.5 on December 9, up 495 points from the previous day’s close. It then fell to 25,981.24 points on March 23, a day before the Narendra Modi government declared a nationwide lockdown to prevent the spread of the Covid-19 virus. Here are four charts which explain this recovery.
Markets have been in recovery mode for months
The Sensex started falling at the beginning of the year. The declaration of a pandemic and fears of lockdown only made it worse. In terms of month-on-month change the Sensex fell substantially for three consecutive months until March. The month-on-month fall of 23.1% in March 2020 was the second biggest since May 1979, the earliest period for which data is available in the Centre for Monitoring Indian Economy’s (CMIE) database. The largest month-on-month fall was in October 2008, when markets received the shock of the financial crisis in the US. However, the Sensex recovered by an impressive 14.4% in April. Barring May and September, when it contracted again by 3.8% and 1.5% it has grown in every month, with the November month-on-month growth being an impressive 11.4%.
But they shifted gears on vaccine hopes What explains the sudden spike in the stock market from November onwards? It is the hope of a vaccine against Covid-19. Analysts have been maintaining for a long time that the economic recovery will gain momentum only when a vaccine is developed which will reduce, if not remove, social distancing requirements and restore normal economic activity. November is the first month when vaccine developers announced successful updates on their results, and applied for emergency approvals in major countries including India lending credibility to prospects of a mass-vaccination effort in the near future. It is this hope which has generated tailwinds for markets across the globe.
{{/usCountry}}But they shifted gears on vaccine hopes What explains the sudden spike in the stock market from November onwards? It is the hope of a vaccine against Covid-19. Analysts have been maintaining for a long time that the economic recovery will gain momentum only when a vaccine is developed which will reduce, if not remove, social distancing requirements and restore normal economic activity. November is the first month when vaccine developers announced successful updates on their results, and applied for emergency approvals in major countries including India lending credibility to prospects of a mass-vaccination effort in the near future. It is this hope which has generated tailwinds for markets across the globe.
{{/usCountry}}How broad-based is the stockmarket recovery?
Has everyone gained in the ongoing stock market recovery? An HT analysis of year-to-date growth in different sub-indices in the BSE does not suggest this. Healthcare companies have made the biggest gains this year, followed by IT and technology companies. Some of the most important sub-indices such as Bankex, Oil & Gas and Finance have actually contracted compared to their values on December 31, last year. When it comes to companies by size, all three sub-indices; Large Cap, Mid Cap and Small Cap have made gains on a year-to-date basis.
India is among the best performing markets this year
India is not the only country where stock markets are experiencing an unprecedented boom. Stock markets in the US are also heading towards another record high buoyed by hopes of a vaccine and another round of fiscal stimulus. An HT analysis on a year-to-date basis suggests that India is among the better performing markets in the world; second only to Japan’s Nikkei index this year.