The market has regained all that it had lost yesterday.
And we are left scratching our heads. What was it about yesterday that led to the market crash and what is it about the markets today that its bounced back so sharply? 24 hours have changed the complete perception and we are left scampering around for reasons.
Yesterday, the market fell because, as per analysts and brokerage houses, the market was overbought and stock prices had gone up way beyond fundamentals and the correction was a logical step ahead. Many blamed it on the Q1 earnings season where revenues of majority companies have shown a drop and it is only through clever cost cutting and lower taxes that some of them have managed to report a better net profit. Some even blamed it on the Covid, saying that it is getting more prolonged than expected and this could cause more damage to the economy than expected. Even the recovery in auto sales for August was labelled by many as ‘unsustainable’ and ‘one-off.’ The increasing tension between US and China was also cited as one of the reasons. There was also worry over what the RBI’s MPC will do – rate cut or rate hike as inflation has surged?
So, what changed in these 24 hours? All these factors listed yesterday hold true even today. No impactful stimulus was declared nor was there any new positive development on the pandemic front.
For one, the biggest reason is that the US markets jumped up yesterday and the Indian markets, most of the times, moves in tandem. Dow gained 236 points, its third positive session in four and so did the S&P 500. Nasdaq hit a fresh all-time high and record close. US manufacturing data beat expectations and this helped lift the oil prices.
In the Indian markets, its truly baffling to hear the lame reason – RBI clearing the name of Sashidhar Jagdishan's name as the next CEO of HDFC Bank. How can this be responsible for an over 700 points jump?
Then another reason – after the beating down yesterday, value buying has once again emerged. One day crash has made the stocks reasonable? Analysts say that what we are seeing today is stock specific action and buying is happening in stocks based on the earnings and commentary.
There are many who say that RBI’s meet is responsible – there is no fear of a rate hike but markets are calmer now looking at either a rate cut despite the rising inflation or status quo, which is also acceptable for the punters. But then in the current scenario, whoever told the punters in the first place that a rate hike could happen at all?
The markets have today decided for the MPC – a 25 bps rate cut it will be and they are also expecting RBI to announce some more monetary measures and regulatory policies for the financial sector.
Usually, what we see is that when there is a drop in equity markets, gold prices rise and vice versa. But gold seems to be moving independently – today despite the markets soaring, gold prices remained steady near record highs amid concerns over spike in covid-19 cases and the global economic fallout from the pandemic. On MCX, October gold futures were up 0.2% to Rs.53,865 per 10 gram. Gold thus remains a hedge and pandemic fear is omnipresent yet the market does not seem to give much credence to Covid and its impact. This disengagement between gold and stocks is unusual – gold is right or equity?
Well, the market is in a ‘don’t worry be happy’ phase and it is by nature optimistic - investors and analysts have already discounted earnings downside for FY21 and are looking at earnings of FY22 and FY23.
So, should we be like the market and put away all worries of current fiscal slowdown? Our sincere advice – wherever you are making profit, book at least 50% and re-enter when chips fall again.