Abhinandan Kaul2020: The Year Of Baffling Economic Dissonance
By Abhinandan Kaul in Opinion
If the World was a theatre and Years were movies, then 2020 would definitely be Jumanji, with everyone terrified with more than half of the movie finished, waiting for a positive climax and happy ending, hopefully by the arrival of a vaccine!
The year started with memes about World War 3 and the pattern of plagues that the world has faced in the second decade of each century. Who knew, what was joked about could actually come true!
As the pandemic continues to grip onto the world, it has unleashed a chain of events which predicting a year ago would’ve been impossible. For starters, price of oil in the US fell and was pushed to the negative side of the economic system for the first time in history. Who could’ve even imagined that the prices of a fuel which literally drove the global economy of the 20th century, and still does play a major role at present, could fall to such an extent that producers were willing to pay to have oil taken away from them! Well, although unimaginable, this situation is still understandable. The onset of the pandemic had a domino effect which lead to less buyers and more sellers, and thus fall in the price, basic economics!
However, there are other economic supporting actors in 2020 which have baffled many. One being the growing dissonance between the stock market and the economy of our country. The economy as everyone knows by now, has been severely damaged by the Covid-19 situation and its consequent lock downs due to which the manufacturing and service sector in India and other countries were brought down to their knees. Some of the fastest growing economies in the world like our own have now fallen into contraction with a negative growth. However, on the other hand, we see that the stock markets which crashed initially when the Covid pandemic begun, have gradually recovered and are now on their way up. What is causing such a disconnect is a matter of deliberation and thought. There are many possible reasons that we can take into consideration to explain this mystifying phenomenon.
Firstly, we can observe that 2020 has seen a lot of foreign investment in India. International buyers imbued around $ 6 billion in the Indian stock market in August 2020 alone!
Well this may be because of the focus investors may have on future earnings. 2020 has already been looked over as a year of economic down surge and the market may be looking at the future as the time of recovery and thus earning.
There are many other factors too at play that people may miss, like the recent appreciation of the Indian rupee, the increase in the foreign direct investments (Between April-July, FDI into India stood at $20 billion), as well as the manifold increase seen in the participation of Retail investors.
The number of Demat accounts opened up in the last few months has seen a dramatic rise, since March in the initial stages of the pandemic. This would’ve been since during the initial hit of the pandemic and market crash, stocks were at a major low which provided the opportunity for many to invest in anticipation for future gains.
The lockdown also provided the opportunity to many to learn about the market through online courses and invest in it with a huge variety of apps providing these services and tapping into the sector. Quoting the famous billionaire investor Warren Buffet-“The stock market is a device for transferring money from the impatient to the patient”, and thus while the economy depends upon the current situations, stock markets depend upon the expectations of future earnings.
Although, the stock market at present is witnessing a boom, the RBI Governor Shaktikanta Das has hinted that there will be a correction in the volatile stock market. "There will definitely be a correction but we can't say when,” said the Governor in a T.V interview as reported by the Economic Times. However, whether the good times in the stock market would last or not, remains a matter of speculation and is something very difficult to be concrete about, especially in 2020, the Jumanji of all years!