The World is Suffering & has been hit from Corona Virus. Each & every human being is being effected by Corona Virus in a way or the other & hence Stock Markets are no Exception.
March 2020 was the Worst Month in the History of Stock Market. World Stock Markets Crashed by 40-50%. We Witnessed two lower circuits in the Month which isnt normal.
This Reaction of Stock Market was mainly because Stock Markets were Unable to assess the impact which could have been caused by Corona Virus & due to fear and Panic we Witnessed the Biggest Crash of all time.
China & U.S were the Countries having witnessed the Corona Virus much Before India. So FII's ( Foreign Institutional Investors) were holding Short Positions of 88% when Nifty was Trading near 12300 ie , all time highs for our Stock Market.
They could figure out that because of huge Demographic , Population and low health care Facilities , India would also be highly effected from Corona Virus.
FII's have been holding their Short Positions from 12300 to 7800 levels on Nifty. They began to book profits near the level of 8000 on Nifty and now the positions have been reduced to 58% only which was 88% earlier. Stock Market also began to think a notch higher than just Corona Virus. The pace at which Cases were increasing was much lower than as in the Month of March. Each & every Negative News was given a reaction by the Stock Market in the Month of March. April Month market was just ignoring all the Negative News ( I have been Mentioning this everyday in my report Blogs) & also according to me Nifty fall from 12400 to 7500 in a Month was an Excess. The world has been dealt with more Severe Pandemics before but never ever Witnessed 40-50% fall in a Month.
Whenever there is a News or an Event the Impact is limited to a Specific time frame and Stock Market Discounts it Immediately. If Corona Virus stays for another Year you cant expect Stock Markets to go lower everyday. Stock Markets will Discount it and start to look ahead.
Retail Investors invest Money when market is at highs and Withdraw when Market is at Lows due to fear. Opposite needs to be done to make money in Stock Market. Economic Package and big STIMULUS were being Announced by U.S & also due to Lockdown the percentage rise in cases was lower than before & the number of Recoveries from Corona Virus cases were also Increasing all over the World.
Markets are a Discounting Mechanism and they discount the Future . In the Year 2008 , Home Mortgage Sector Crisis was Witnessed Throughout the World which caused a great Decline in the World Stock Markets but very soon the Stock Markets Hit an all time high even before Economies Recovered. Markets Discount the future much before and always think ahead of what normal people do.
After Nifty recovered from 7500 to 9000 which is a rise of 20% from the Lows , Retail Traders felt that Stock Markets have been Increased Significantly and they again Started to Short the Markets. These Shorters have been Trapped as Market wasnt rewarding them & the rally was also due to the "Short Covering Rally"
So the Major Contributor for the Current Rally in Stock Market were:
1) Decreasing pace of Corona Virus Cases.
2) Excess Reaction in the Month of March as Markets were Unable to assess the impact which led to Panic Selling.
3) Indian Markets are Moving in line with the Global Markets & Infact all the World Markets have been Moving in line since March since this is a Global Pandemic.
4) Tracking Macro News , Global Data is quite Important which most of the Retail Traders do not focus on.
What Next From Here?
Our Government is Experimenting by Lifting lockdown and Providing some Relaxations and will be tracking the numbers of cases. If these Cases Start to rise after the Relaxation then we would again be forced to stay locked even for few Months and we could see Markets test the low of 7500.
On the Other Hand , if the Lockdown Norms are Relaxed and there is not much higher surge in Positive Cases and the Market figures it out , I won't be Surprised to see Markets at all time highs much before the Economy Recovers.
Hope Ive done Justice in explaining you the root cause of recent rally in Stock Markets.
Thank You for Reading.
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