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The Party to Continue in Equity Markets Till Global Apex Banks’ Injected Liquidity Lasts: Analysts

© AP Photo / Rafiq MaqboolA man walks near the bronze statue of a bull outside the Bombay Stock Exchange (BSE) in Mumbai, India, Thursday, Oct. 4, 2018
A man walks near the bronze statue of a bull outside the Bombay Stock Exchange (BSE) in Mumbai, India, Thursday, Oct. 4, 2018 - Sputnik International
The benchmark Indian stock index, Sensex, on Friday touched another peak at the 47,000 mark, an almost 81 percent recovery from the low of 25,981 witnessed on 23 March of this year, two days before a nationwide lockdown was instituted to slow the spread of the Covid-19 pandemic.

Benchmark indices in Indian equity markets are at alltime highs, market capitalisation has gone through the roof and the initial public offer (IPO) market -- listing of new firms -- is abuzz with energy as new scrips skyrocket on the listing. 

A large number of stocks have doubled from lows witnessed in the month of March, while a number have even trebled. Going forward, experts say markets will continue to remain bullish. 

According to Shrikant Chouhan, executive vice president, Equity Technical Research, Kotak Securities, the larger texture of the market is still into the bullish side, “so any short term corrections should be used to add quality information technology, pharmaceutical and fast moving consumer goods stocks with the medium term time horizon".  

He feels that the meteoric rise is attributed to an inflow of foreign funds into Indian equity markets.

"On a weekly basis, for the seventh consecutive week, the market has managed to close above the closing of the previous week. We could say it was mainly due to robust inflows from foreign institutional investors (FIIs) in the Indian markets," he said, after the Indian bourses closed for the week on Friday.  

Foreign investors have made investments worth $4.92 billion in the Indian equity market till date in the current month.  

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Analysts feel that all this is happening at a time when macroeconomic fundamentals remain poor and the Indian economy continues to slip more deeply into a recession. 

India's Gross Domestic Product (GDP) growth for the months of July-September is still negative, although it has recovered from lockdown lows and a 23.9 percent contraction in April-June of this year. Growth contracted 7.5 percent in July-September of this year. 

Negative economic growth has been projected for the entire current financial year (April 2020-March 2021) due to disruptions caused by government handling of the Covid-19 pandemic. 

Experts feel that equity markets are not reflecting current macroeconomic fundamentals, as they may have factored in the dip and may be bullish on future prospects. 

A representative from a brokerage house requesting anonymity told Sputnik, "Equity markets look at least six months into the future. India is undoubtedly poised for growth. Plus there are a number of positive developments on the vaccine front. Demand and consumption are likely to gather faster pace. Last but not the least, there is an influx of mega funds from foreign investors."

"Due to monetary easing across the globe in wake of the pandemic, there is a massive liquidity flow, which is finding its way into the equity markets. The party will last [as long as] the liquidity injected by global central banks lasts," the representative added. 

Globally, the apex banks have injected almost $9 trillion since the beginning of the pandemic. Global economies have taken fiscal measures worth some $11 trillion. 

In India, banking regulator Reserve Bank of India (RBI) has injected some $125 billion to maintain stability in the Indian financial market. The Narendra Modi-led government has also rolled out an economic stimulus package of $266 billion to insulate the economy from the impact of the Covid-19 pandemic.

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