Two years after nationwide lockdown, markets sit pretty with big gains

Exactly two years ago, the market saw one of its biggest single-day drops, plunging 13 per cent as Covid-19 infections forced the government to announce a complete shutdown, raising a question mark over the economic outlook.
 

Stocks nosedived over 40 per cent from their 2020 highs as investors grappled with the impact of the pandemic. On March 23, 2020 few would have predicted that the markets would more than double in just a few mo­nths. The aggressive stimulus measures and post-pandemic resp­onse from governments and global central banks, mainly the US Federal Reserve, saw stocks rise like a phoenix.
 

“Central bank intervention through monetary easing was the game-changer. A lot of credit has to go to central banks. Now the economies have started rebounding, so markets are taking the withdrawal of stimulus in its stride,” says UR Bhat, co-founder, Alphaniti Fintech.
 

The market is still pretty with two-year returns for Nifty at 2.3 times, while the Nifty Midcap 100 and Smallcap 100 were up a sharper 2.7 times and 3.1 times, respectively.
 

“The economy declined after the pandemic struck. But the rebound in markets was swift. The pandemic happened in phases or waves and this insight helped the markets remain sane. Though the GDP fell immediately, people were confident that the economy would bounce back. This aligns with what market wizards say that the future is discounted,” said G Chokkalingam, founder, Equinomics.
 

While the two-year returns for the market look eye-popping, the gains look modest compared to pre-pandemic highs. The Nifty is up less than 40 per cent from its January 2020 highs. Returns for the MSCI Emerging Market and MSCI World are just 7.2 per cent and 25 per cent, respectively, during this period.
 

Post-pandemic, India has been one of the bright spots globally. “What has saved the Indian markets is the power of retail investors. We never could think that retail could move markets. In the past, we have witnessed a jump in retail participation. However, this is the first time we saw retail leading the markets. That is the biggest takeaway from the post-Covid rally,” says Ambareesh Baliga, an independent market analyst.
 

Since October, foreign portfolio investors have pulled out ~2.1 trillion from the domestic market. Historically, far less intense selling has led to a market crash. However, this time the benchmark indices escaped with single-digit correction.
 

Experts are tempering down the return expectations amid global unce­rtainty caused by the flare-up in commodity prices due to the Russia-Ukraine conflict. Also, a spike in val­u­ations provides little room for much further upside.