Liquidity also has a habit of looking at the brighter side of any situation – a silver lining is enough to latch on. When the economy opened up June onwards, the month-on-month and year-on-year sales / operational numbers of companies/businesses brought cheer.
That said, the markets cannot move up without intermediate corrections. However, each of these corrections was seen as a buying opportunity; hence, minor corrections were followed by a spirited bounce back. Today, globally, the ‘Robinhood’ investors are considered a force to reckon with, due to their collective liquidity and well spread reach. But every such ‘force’ has a weak link which finally leads to its nemesis. Most of these investors have seen unprecedented profits since the time they invested with every additional rupee providing them higher returns with seemingly no risk to capital. We need to see how they behave when the markets correct sharply – whether they bring in fresh capital or they panic. I believe it could be the latter, as losing one's own money is always very painful.
In the last few weeks, even the nay-sayers were submitting to the gush of liquidity, the markets were poised for a further run as the earnings season was still three weeks away, and no other roadblocks were seen on the horizon. The news
of a renewed lockdown in Europe due to fears of another wave of Covid-19 cases with the onset of winter seems to have caught everyone by surprise and tumbled the apple cart. Many other issues like rising Covid-19 numbers in India or the Indo-China border dispute were being brushed under the carpet. The Indian economy surely is not in a position to bear any further lockdown, even as analysts and economists are still grappling to understand how much we have already sunk.
Though stock markets
are said to be the barometer of the economy, one needs to see the next few days whether it continues to be blinded by liquidity or slides due to panic. After all, it’s a game of psychology – Fear vs Greed.
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