On September 7, 2021, the benchmark index Nifty 50 marked the Lifetime high levels of 17,436.50 and was up by 0.31% on Tuesday. The Lifetime High of the index of Top 50 Stocks was around 12,400 in the last calendar year i.e., 2020. From this level of 12,400, Nifty 50 has marked the new lifetime highs about 40 times. The same case goes with the BSE Sensex index. On the same day, i.e., 7th of September, the BSE Sensex also marked its lifetime high levels of 58,553.07. So What are the reasons behind this new lifetime high of the Stock Market Index? Let’s discuss.
3 Major Reasons:
1) Improved EPS:
- At the time of the Market Crash in March 2020, where the market fell by around 30%-40%, at that point of time, the Earnings Per Share (EPS) of the Nifty 50 was around 443.
- The Nifty Index is used to consider the Standalone EPS of the Companies before 31st March 2021.
- But post 31st March 2021 i.e., from the beginning of Financial Year 2021-22, the Nifty now considers the Consolidated EPS of the Nifty 50 Companies.
- This EPS of Nifty 50 was hovering around 60 on the 7th of September 2021, which is up by around 47% in the last 17 to last 18 months. Even after adjusting the arrangement of Standalone and Consolidated EPS of Nifty 50, the EPS is still up by around 30% between the same period.
- Before March 2020, there was sluggish growth in the Nifty EPS for around 3 years.
- This improved EPS and expected growth in EPS of around 30% over the next 12 months has acted as a ground for touching new heights for the index.
- The status of recovery and revival in the economy next year will also be factoring. But as of now, the positive momentum continues.
2) Unprecedented Liquidity:
- During the Covid-19 pandemic time, all the Central Banks of the world infused liquidity of around $8-$10 billion to support the economy.
- But post the upcoming normalcy in the economy, increasing vaccination drive, and other suitable factors, the central banks are still not clear about the tapering of the liquidity infused.
- The Central Bank is more on the side of slowing down the liquidity process which indicated the situation of the presence of liquidity in the market for some more time and hence which is acting positively in the market and enabling the marked indices to mark new lifetime high levels.
3) Market Sentiment:
- Positive Market Sentiment
- Fear of Missing Out (FOMO) phenomenon among retail investors
- TINA (There is No Alternative) Effect, which means until another asset class develops, the stock market is going to be an attractive investment avenue for the investors.
In these market situations, Investors should follow the basic rule of Asset Allocation Strategy. If an individual is commencing off his/her investment journey and want to participate in Stock Market, then it is advised to invest 30%-40% in a lumpsum manner, and the rest of the amount should be invested in a staggered manner. Managing your behavior well in the context of the investment journey is also an important part. Do consult with a financial advisor before making an investment journey.