After two years of nationwide shutdown, markets are still enjoying significant gains

Exactly two years ago, the market experienced one of its biggest drops in a single day, dropping by 13 per cent as the Covid-19 infection forced the government to declare a complete shutdown, raising a question mark over the economic outlook.

Shares are down more than 40 percent from their 2020 highs as investors grapple with the impact of the pandemic. On March 23, 2020, few expected the markets to double in just a few months. Severe stimulus measures and the subsequent response to the pandemic from governments and global central banks, particularly the US Federal Reserve, have seen stocks soar like the phoenix.

The central bank’s intervention through monetary easing was a game changer. Much of the credit should go to central banks. Now economies are starting to recover, so markets are taking steps to withdraw stimulus,” says UR Bhat, co-founder of Alphaniti Fintech.

The market remains beautiful with 2-year returns for Nifty at 2.3x, while the Nifty Midcap 100 and Smallcap 100 are up more sharply 2.7x and 3.1x, respectively.

“The economy slumped after the outbreak. But the market recovery was quick. The epidemic happened in phases or waves and this insight helped markets stay sane. Despite the immediate drop in GDP, people were confident that the economy would return to normal. This is consistent with what Market wizards are saying that the future is at a discount,” said J Chucalingam, founder of Equinomics.

While the two-year market returns are striking, the gains appear modest compared to the pre-pandemic highs. Nifty is up less than 40 percent from its January 2020 highs. MSCI Emerging Market and MSCI World returns were 7.2 percent and 25 percent, respectively, during the period.

After the pandemic, India has been one of the bright spots globally. “What has saved the Indian markets is the strength of retail investors. We can never think that retail can move the markets. In the past, we have seen a jump in retail participation. However, this is the first time we have seen retail leading the markets. Ambarish Baleja says, Independent Market Analyst:

Since October, foreign portfolio investors have withdrawn about $2.1 trillion from the domestic market. Historically, less intense selling led to market crashes. However, this time the benchmarks escaped the single-digit correction.

Experts are softening expectations for a return amid global uncertainty caused by escalating commodity prices due to the conflict between Russia and Ukraine. The sudden rise in valuations also provides little room for further upside.

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