On June 11, Friday, the benchmark index, Sensex touched 52,641.53 points, a record intraday peak, before settling at 52,474 at closing. The Nifty also closed a tad under 15.8 k levels. Foreign portfolio investors (FPIs) were net buyers, investing Rs 18.64 crore on June 11, while domestic institutional investors (DIIs) also bought shares worth Rs 666.36 crore in the markets.
The benchmark index, Sensex, beat its previous peak of 52,516 points in February 2021. Between the two peaks, the markets saw a severe second wave of Covid-19 infections. The Sensex fell from the peak to 47k levels. However, the markets never experienced lows like 2020, as there were no national lockdowns this time round. Further, global recoveries and expectations of a quicker recovery from the second wave, ensured that the markets maintained positive levels. In fact, in May 2021, the markets gained 6.5 per cent.
The other benchmark index, Nifty, has gained 1851 points since the start of 2021. The index has gone up 59.86 per cent during the course of a year.
As the cases drop further, and many Indian states and key Indian cities relax lockdowns, the markets could gain greater confidence. On May 1, India reported more than 4 lakh ases in a day, the single highest daily number for the first time in the pandemic. Ever since, cases have dropped, with India reporting just over 84,000 cases on Saturday, June 12.
India’s volatility index or VIX has fallen 29 per cent to 15 through 2021. The drop is over 11 per cent in the month of June alone, showing signs that fears of the second wave impacting the market have receded. This reflects a sense of calmness and lack of fear among investors.
Between April and May, India saw an exponential rise in Covid-19 infections. The volatility index reflected the rise in cases, with volatility rising 11.5 per cent to breach the 23-level. The low volatility in June is an indication that investors are not expecting key corrections over the near or immediate term, a sign of stability. It may be recalled that VIX in 2020 when lockdowns and curbs were in place for a major part of the year had shot up to over 21, a rise of over 80 per cent.
Following troubles in procuring and the funding of vaccines by many states, the Central government stepped in to announce a centralised system of vaccine procurement wherein 75 per cent of doses will be procured by the Centre and distributed to the states. These will be administered free of cost. Also, reports suggest that vaccination pace has picked up in June, with a daily average of 3.04 million doses administered as of June 11. The cumulative dose numbers in May stood at 61.16 million, with a daily average of 1.97 million doses. As of June 11, India has already crossed half the May number of total doses, at 33.45 million. Expectations are that supply of vaccines will improve from July, as news reports say that the government has ordered over one billion doses. Any improvement in pace of vaccination, free availability of vaccines and procurement of foreign vaccines will boost the markets.
Other comfort factors for the markets
The Index of Industrial Production (IIP) went up by a steep 134.44 per cent in April, according to the National Statistical Office. Although this increase may not be comparable with the same month last year, because of the stringent national lockdown back then, there is expectation that as the second wave is way past its peak, industrial production may pick up in the coming months.
There has also been a lot of activity in the primary markets, with four new initial public offerings hitting Dalal Street, indicating a rise in confidence in the markets.
The Reserve Bank of India’s continued accommodative stance and efforts to keep liquidity high will further boost the markets. In early June, the RBI announced a Rs 15,000-crore liquidity window to offer lending help to businesses till March 31, 2022. This window is aimed at encouraging banks to offer lending to sectors that have been impacted by the second wave of the pandemic including restaurants, hotels, parlours and private bus services, among others. As cases drop, and there are signs of businesses allowed to function again in the coming weeks, this RBI support and people’s confidence levels will ensure the economy reopens and gains momentum This will further boost the markets. The markets will also keep a close eye on the monsoon spread.
As the second wave abates and Covid-19 infections dip drastically, many states have begun unlocking commercial activities and lifting curbs. This, along with the promise of faster, free vaccines and a good monsoon, will ensure that the markets stay positive and maintain momentum through the second half of the year.