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Reasons for Stock Market at all-time high and K-shaped Economic Recovery

The discussion started off with insights into the market condition during the COVID-19 lockdown majorly discussing how despite the economy being in a state of recession, the stock market continued to boom.

Discussions about Foreign Portfolio Investment & Foreign Institutional Investment and why India is following a path of K-shaped recovery were the key highlights of the evening.

The main differences between the terms FPI & FDI were discussed by students. Self-explanatory examples like "Facebook buying a part in JIO's share is FDI, while Tesla and Apple establishing manufacturing centres in India and using the country's resources is FDI" were used to make the conversation more fruitful.

Differences between FPI and FDI were highlighted.While FDI gives you a say in the companies day to day activities and operations, FPI doesn't and is a mere investment in stocks of a company located in another country. The reasons behind the stock market breaking records were explained. As foreign investments increased, especially after the release of the annual budget, people's confidence in stock markets increased. Hence, a sudden boom in the markets was reflected.

A major reason for the increase in FPI and FDI was the cheaper price of stocks and a weakened economy system. Furthermore, the roll-out of the vaccines and a well-defined budget created a wave of positivity, thereby increasing investments in the stock market.

After an insightful conversation, the topic was shifted to the concept of a K-shaped Economy.

Recovering from the impact of Coronavirus isn't going to be easy for any country and most economies would follow a K-shaped recovery path. The concept of K-shaped recovery was explained through graphs and figures. Examples were given to demonstrate how India is already following a K-shaped recovery system. While the technology sector is booming as everything is digitalized, the tourism and hospitality sectors are suffering as a result of a decrease in travellers.

Restaurants and food outlets were severely impacted after the imposition of a nationwide lockdown but as the lockdown was lifted and campaigns were started by online food delivery companies like Zomato and Swiggy, the sector again gained momentum. The entertainment industry (especially OTT platforms) saw a boom as the world shut for the better. The medical industry was of course the most active during the pandemic.

The relationship between a boom in the stock market and the path of a K-shaped recovery was highlighted. An increase in FDI triggered a bullish phase in the stock market but only in sectors that were in a boom during the lockdown phase. Not all sectors were given equal importance and hence some sectors rose while others remained stagnant or fell.

The meeting concluded by mentioning that although different factors are responsible for the rising/fall of various sectors, one of the major factors that govern the rise/fall is the financial position of a company. Alongside, lower interest rates, Joe Biden's victory in the US presidential elections, huge foreign inflows, new market participants, robust GST collections, vaccines rollout and a significant decrease in the number of COVID cases were highlighted as major reasons for a stock market boom.

The session proved to be very insightful and fruitful for the students as they were enlightened by different perspectives.


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