The whole world is going through a critical stage due to Corona Virus pandemic. The economy of whole world would suffer the loss of trillions of dollars in future. Right now almost every country is struggling from the impact of the pandemic. Jobs are vanishing day by day, daily expenses are increasing rapidly, saving are going down, businesses are shutting down, lockdown all over the world and economy is touching the new low. New and small start ups are struggling in this pandemic situation. But after these entire blunders one question is arising in everybody’s mind that why the stock market is going up when the economy is going down?
Let’s check out the Indian Stock Markets. In the Corona period, BSE Sensex and Nifty hit the lowest in April month and now it is rising and almost recovered to the previous position. In March, BSE Sensex and Nifty fell to 25,981 and 7,610 points respectively. As on 08 June, 2020, BSE Sensex and Nifty reached to the 34,841 and 10,326 points respectively.
There are several questions in everyone mind like why the stock market is going up when the economy is going down? At the time of high unemployment, huge job losses and drowning economy, why the stock market is going up? What are the reasons of rising market even though the economy is crashing? Whether its the right time to invest in the stock market? The answer of this question is present in the current scenario.
Here are some reasons why the stock market is high in-spite of low economic activity.
Factors of Share Price
Before you know the reasons for the upward movement of stock market in the downward economy, you have to understand the factors affecting share prices.
Here are some factors that affect the share price of the companies in both upward and downward movement:
A. Supply and Demand
Like all assets, the supply and demand is the most important factor that determines the price of a share. That means higher the demand of stock would result in higher the price of said stock.
B. Company News
Any favorable or unfavorable company news can impact the price of shares of the same company accordingly. That means favorable news could results in price up and negative news can lead to the downward movement price of the share.
C. Industry Performance
Industry performance often determines the price of shares because companies in the same industry often perform similarly. So, when industry perform well then the share price of such sector often increase and vice-versa.
D. Market Sentiments
Market sentiment refers to the overall feeling of the traders in the stock market. Sometimes, investors influenced by the mood in the market instead of concrete news or figures. It is one of the most important factors that influence the stock price of the company in the short run.
E. Economic Factors
Economic factors also play an important role in determining the price of the share. It include interest rate changes, financial outlook and inflation. For e.g. if the interest rate and inflation rate go up, and the economic outlook is poor then the share price will likely to come down.
There are various other factors also which also plays an important role in determining the share price. Other factors include:
- Government Policies;
- Market Capitalization;
- Management Profile;
- Political Factors;
- Availability of credit;
- Returns offers by other markets;
- Level of Foreign Investment;
- Stability of Government;
- Future Sustainability;
- Return offers by other Markets.
After understanding the factors affecting share price of the company, now let’s discuss why the stock market is high in-spite of low economic activity? and what are the reasons of rising market even though the economy is crashing?
The Date of Lockdown
The nationwide lockdown started in India in the mid March as the precaution measures to the novel corona virus pandemic and almost all the economic activities except essential goods and services put on hold. The economy of the county touched the new low during lockdown. But for the financial year 2019-20, the country has been shut down for only 15 to 17 days. Due to this, the real impact of the pandemic is not able to shown in the financials of Companies for the said financial year. Most of financials of the Companies are marginally reduced as compared to previous financial year.
In simple words, the financial results issued by the listed companies do not reflect the real impact of pandemic. The impact shown in the financials of last March quarter is of few days only. The factors like industry performance, economic factors, and future sustainability are not fully visible in the last quarter results.
Upcoming Financial Results
The real impact of Corona Virus pandemic cannot be shown in the March quarter. The real impact of the pandemic will be shown in the next quarter results. The financial results for the June quarter will show the real impact of the pandemic. It will show the impact on turnover, profitability, sustainability and the short and long term future prospects of the organizations. So, we will see the true position of stock market after the results of June quarter and it will show the real impact of pandemic in the stock prices of organizations.
The current market scenario is not showing the true position of the companies because it reflects the financial position of the companies earlier the pandemic. The factors affecting the share price are not fully visible right now. That`s why the stock market is performing much better even though the economy has not picked up yet. The real impact of the pandemic on the share price will be seen after the financial performance of June quarter will publish. After that, the impact of falling economy will clearly visible on the stock market. So, it`s up to you to decide whether it`s the right time to invest in the stock market?