60,000 Day: Six Reasons Why Sensex Is On A Bull Run

The Bombay Stock Exchange's Sensex hit the 60,000 mark on Friday (24 September), zooming up 350 points in the early trade. The Sensex has risen by 64 per cent over the past year, while more than doubling from the lows of April 2020. Several factors have helped the markets rise rapidly.

Here are some factors which have helped the markets:

1. Liquidity

The financial world has witnessed quantitative easing for more than a decade, and central banks unleashed several liquidity measures to help economies overcome the Covid-19 pandemic. Liquidity has been a major factor behind the current rally globally. With extremely low-interest rates, more investors are moving towards investments that could potentially generate higher returns.

Further, with the upheaval in Chinese stocks in the past few months, global investors could be looking at other growing markets like India.

2. Increased Retail Investor Participation

Retail investor participation saw a large increase last year. Data from Central Depository Services Limited (CDSL) shows that the number of investor accounts doubled between January 2020 and July 2021. In contrast, it took five years for the investor accounts to double from one crore to two crore. Retail investors have also come to dominate the cash segment of the markets and contribute to 45 per cent of the trading, up from around 33 per cent five years ago.

3. Increasing Comfort With China Evergrande

The China Evergrande crisis threatened to derail the rally in the markets. Global markets which were jittery have now shown signs of strong recovery. Possibly the markets believe that government intervention will prevent a full-fledged financial crisis.

Evergrande is China’s second-largest property developer with operations across 280 cities. The company owes almost $300 billion to creditors, suppliers, employees, investors and others. Metal, banking and realty stocks which had been hit by the fears of the Evergrande crisis, are now leading the rally.

4. Rapid Vaccination Campaign

Experts believe that the rapid vaccination campaign in India has allowed markets to feel less jittery about the third wave. Lockdowns related to Covid have caused the economy to slow down in the past. Some businesses like hospitality, cinemas, malls and others are yet to recover from the crisis.

5. Government Reforms

The Indian government has been working to improve the manufacturing sector through production linked incentive (PLI) schemes for several sectors. These measures incentivise manufacturers to employ more capital expenditure. The reforms are aimed at helping India recover its manufacturing base and perform better.

So far, the government has introduced PLI schemes for sectors like textiles, automotive and solar manufacturing. Indian has been lagging in textile and solar panel manufacturing for some years, while the automotive sector has seen a slowdown in recent years.

6. Fed’s Announcement

The Federal Reserve announced that it would slowly taper its asset buyback programme. While this would mean reduced liquidity for the markets, this has been on the cards for a long time. Therefore, the markets probably have discounted this factor. Further, the markets expect the tapering to begin sometime later, according to experts.

Despite the optimism, investors ought to be careful. The index price to earnings ratio stands above the long term average. As of September 2021, the Nifty PE stands at 27, which is higher than the long term average of around 20.