For the Indian stock markets, 2021 started with hope and expectations that the pandemic is done and dusted. Boosted by the resumption of economic activities and the vaccination drives, equity markets neutralized the possibility of a second dip.
While it’s unjust to expect benchmark indices to deliver similar returns as the previous year, the expectations for the bull run to continue were on a high. This is considering the unbelievable recovery the markets underwent from their March 2020 lows. With one month still to spare, the Nifty 50 has already delivered 22% returns in 2021, beating its annual average of 12.2% by quite some margin.
Though historical facts don’t compulsorily predict future moves, the stock markets in 2021 followed what happened in 2010 after the crash of 2009. Just like 2010, which was the second year post a stock market crash, 2021 also proved to be the second year of a bull run after a market crash.
If we overlook the minor choppiness of April, the stock markets have absolutely bludgeoned, catapulting fresh highs.
On August 31, 2021, the market capitalization of companies listed on BSE surpassed Rs 250 lakh crore for the first time in history. This indicates the massive investments that the equity markets have attracted in 2021. A major driving force behind the sustained bull run is the bullish view of Foreign institutional investors (FIIs).
FII’s kept on buying in the Indian equities to the extent that they were net buyers of over Rs 51,000 crore in the first 8 months. Domestic institutional investors(DII’s) resorted to buying after selling heavily in the first 2 months of 2021.
Strong buying push from FII’s and DII’s, coupled with aggressive retail participation, enabled our benchmark indices to outperform some of the global giants. Nifty 50 amassed 22% returns as of September 1, outperformed Nasdaq (18.79%), Dow Jones (15.38), CAC40(21.75), and several other global indices.
However, there has been a short slump in the market on account of a few temporary factors. Here’s a look at why that’s happening.
Bulls were in the driving seat throughout the first 9-10 months of 2021. And it was only in late October when bulls regained some grip.
Technically there’s nothing fundamentally wrong with the markets. The minor downfall in the market in late October and November shouldn’t be feared as the onset of a crash or sustained bear run. The markets were on their all-time highs, and a small correction was more than necessary. Analysts predicted that a correction of 10-15% was long overdue.
Since October, the foreign institutional investors have resorted to heavy selling in the Indian markets. This is because they found Indian markets overbought and oversold. Since October, they’ve pulled out nearly Rs 29,500 crores, and their selling continues.
The fear of rising inflation is also showing a subdued effect, especially when the same has affected the U.S. markets significantly. Rising inflation would also result in slowing down economic recovery.
Equity markets hate uncertainty, and the resurgence of the new COVID-19 variant, Omicron, prompted an immediate reaction by the market. There’s a flurry of questions about Omicron that are still to be answered, and the markets will react beforehand to any negative developments.
Nifty registered a fresh low of 17,782, falling 9.8% from its all-time highs.
Isn’t “Why is the stock market down today” something that’s been bothering you? Does this indicate a crash is on the cards? Should investors immediately pull out all their investments?
Even though the markets are in the correction mode at the moment, those having a long-term investment goal may have nothing to worry about. Technically, the markets are taking a pause at the moment and a base formation phase could be under process.
Markets are also reacting to the news of the Omicron virus and weakness in the global markets. This will allow stocks to cool down a bit as the majority of the large-cap stocks are overvalued. Markets falling off highs would provide investors to pounce upon quality stocks at discounted rates. And thus there’s no such doubt on the long-term bullish trend in the Indian markets.
Markets are experiencing a healthy correction that was long overdue. As per many market experts, there is no need for a panic-exit. Markets are yet to witness the correction the experts expect.
Mutual fund investments, in general, tend to perform well in the long-run. They work through compounding to grow into a large corpus over time. The longer the investment horizon, the higher the chance of better profits. Short-term fluctuations need to be ignored so that the investment gets its time in the market.
Similarly, mutual funds SIPs work on rupee cost averaging, which tends to benefit the investors irrespective of the market cycles. Moreover, mutual fund investments should be based on investors’ financial goals and not on market prices. Timing the markets might go against mutual fund investors.
Disclaimer: The views expressed in this post are that of the author and not those of Groww.