0Nowadays, most traders and investors in the stock market are very sceptical on a recent robust uptrend. The reason for scepticism is self-evident if economies around the world are sinking due to COVID 19, how can stock market rise and come to the level of before pandemic? Many investors booked profit earlier, and now waiting for a correction. Today I would like to explain this topic in detail.
First of all, we need to understand what is driving the market and how powerful it is. We need to look back Subprime crisis which came in 2008-2009. To fight with the recession, governments and central banks unleashed spending bazooka, and that became the foundation of the modern liquidity-driven era. Secondly, due to the advancement of technology and logistics cost of production has come down, which has put the lid on inflation. It has led the era of near to zero interest rate, especially in the developed world. Increasing government spending, quantitative easing by central banks and near to zero interest rate injected liquidity which is being sucked by the stock market mostly. The third driving force is the inclusive stock market. Due to advancement of technology, now everyone can invest in the stock market. Before 2000 only High net worth people were supposed to invest in the market. Now literally anyone can invest as there is no limit of minimum capital requirement, lower brokerage charges, and ease of investing. You can quickly transfer money to your Demat account and buy-sell instantly from your smartphone. So, the point is the number of shares available in the market is limited, but people coming to this market is increasing exponentially. India has plenty of space for penetration. Just look at the number of account opening since pandemic started.
To add further, this pandemic has started the era of non-stop government spending; central banks are loosening policies to the level we never saw in the past.
It is why the traditional fundamental theories on predicting market have become obsolete because these three driving forces, mentioned above have changed criteria for fundamentals. We are in a new era, and hence we need to think as futuristic persons. It doesn't mean there is no danger ahead. Some may argue that there is a limit of government spending and central banks' loosening policy, but this should not be our worry. Let dance till the music is on.
