Why No Corrections in the Stock Market Despite Lack of Positive News?
The stock market has seen a considerable rally in recent months, hitting all-time highs. Despite the absence of positive news, no significant corrections have occurred. This article will explore the factors contributing to this unexpected market stability and assess the role of retail investors, liquidity, and recent events like the US presidential election and the progress toward a COVID-19 vaccine.
The Current Market Context
Several factors have contributed to the uninterrupted rise of the stock market without major corrections. These include:
Low Interest Rates and Ample Liquidity: Central banks worldwide have maintained low-interest rates and injected substantial liquidity into the markets. This has fueled investor enthusiasm and driven price appreciation. Investor Optimism Regarding Corporate Earnings and Economic Growth: Optimistic outlooks on corporate earnings and economic expansion have bolstered market confidence. Strong Corporate Performance: Despite the challenges posed by the pandemic, many companies have shown remarkable stability and growth. Technological Advancements: Innovations and new technology have led to growth in specific sectors, such as IT and pharma. Structural Shifts Favoring Passive Investing: Passive investing strategies have become increasingly popular, as seen with the rise of ETFs and index funds.Specific Market Insights
The Indian stock market, in particular, has benefited from strong support from retail investors. Since the vaccination progress and the US presidential election, we have observed unprecedented levels of FPI inflows into the Indian stock market. Data from the IndianExpress article highlights significant changes in investor behavior and market liquidity:
Retail Investors Shift to Equity Picking: Even as mutual funds saw a drop in net inflows, retail investors moved from equity mutual fund routes to direct stock selection. This shift has led to a significant rise in retail inflows into the stock market. Increased Trading Accounts: The number of total investor trading accounts in India has surged, reflecting increased participation from retail investors. FPI and DII Inflows: November 2020 saw a massive FII (Foreign Institutional Investors) inflow, possibly unmatched in Indian history, coupled with a drop in DII (Domestic Institutional Investors) inflows.Technical and Market Trends
Technical analysis of the stock market shows that the Indian market, represented by the NIFTY, has moved steadily upward since November, reaching new heights primarily driven by financials, IT, and consumption sectors. The IT sector still has room to grow, while the pharma sector has already peaked. The next phase of the rally is expected to involve IT, oil, and metal companies, with a potential for NIFTY to reach 13,600.
However, based on historical trends, a phase of consolidation and a potential fall to around 10,000 is anticipated before July 2021. This trend will be influenced by ongoing scenarios such as further vaccine distribution, economic recovery, and geopolitical stability.
The Role of US Election and Vaccine Developments
The US election and the progress toward a COVID-19 vaccine have significantly impacted global markets. The stability brought by President Joe Biden’s victory will provide a solid foundation for a sustained economic recovery in the US and globally, which will likely continue to support positive market trends.
The massive FII inflows to India in November 2020 have been a key factor in the upward market trend. These inflows, coupled with continued retail investor interest, have contributed to the rally without leading to any significant corrections.
Another factor that has played a role is the improvement in retail investor confidence. Enhanced internet penetration, especially mobile access, and the availability of market-related educational content on platforms like YouTube and online courses have significantly boosted retail investor confidence in the market.
Moreover, low-interest rates being offered by banks on savings accounts have also induced more retail investments. This shift toward the stock market for better returns suggests that even with a wealth of positive news about vaccines, the market continues to stay robust due to ongoing support from retail investors and institutional players.