When the talk is about stock markets, it’s usually Nifty 50 or Sensex 30 and the benchmark stocks to understand the market and the fluctuations. However, the word is not the stock market in its entirety. It also represents the broader market as more than 5000 publicly listed companies don’t amount to much in the conversation.
Even if the talks were to factor in the others, there’s a vast divergence between stock price performance and the economic indicators. The separation is now greater than ever it has been, and the talks beg the question, what’s going on?
From a layman’s point of understanding, it might be mainly because Stock markets are forward-looking. But, at the same time, economic indicators are backward-looking, and if the traders feel confident about what the future entails, they’ll invest from where they’ll generate most profits. But what exactly gives them this confidence?
If you noticed, commodities like oil, copper, and iron are increasing exponentially with limited extractions. It is because governments all around the globe are actively amassing funds and assets as they prepare to thrust their pandemic-hit economies. Most of it will likely stimulate demand, whereas some of it will get into the financial markets. When the people, organizations, and government have access to these resources, they’ll usually tilt towards investing. And this is why the commodity prices are soaring, as it provides hopes for new jobs and opportunities. But why are stocks in India soaring when the government is cash strapped?
India’s service industry is heavily reliant on foreign clients and is more dependent on foreign capital than ever by opening the economy and liberalizing trade. Hence India’s fortunes are intertwined with the global economy. Even a quick look at the worldwide economy will narrate that the Indian investors are taking cues from their international counterparts. And if this global surge were to prosper, India will thrive alongside. And if the young working-class population were to find avenues, perhaps India could write about their narratives.
Even with all the explanations and theories, which offer the most basic of clues as to why a large group of investors acted the way they do, it does not justify the stock prices.
As Howard Marks said in his memo in 1991 —
The mood swings of the securities markets resemble the movement of a pendulum. Although the midpoint of its arc best describes the location of the pendulum “on average,” it actually spends very little of its time there. Instead, it is almost always swinging toward or away from the extremes of its arc. But whenever the pendulum is near either extreme, it is inevitable that it will move back toward the midpoint sooner or later. In fact, it is the movement toward an extreme itself that supplies the energy for the swing back
And we ask you, where is the pendulum right now? Write down your thoughts in the comments below.
