Where Is Market Headed

The surge in the equity market has been fuelled by the liquidity boom across the globe, which is now behind us. What course will the market take from here on?

- IE&M Research

The first week of August saw, frontline equity indices touching a new lifetime high. Nifty and Sensex crossed the psychological level of 16,000 and 54,000 respectively. This has come after the market has remained in a very tight range of 15600 and 15900 for more than two months. Globally we are witnessing the equity market touching new highs including S&P 500 and Dow Jones Industrial Index.

Returns generated by the equity market globally have been phenomenal and the Indian equity market represented by Nifty 50 has been one of the best performing indices. For FY21, it moved up by 78 per cent only three other indices have given returns better than Nifty 50.

Even year-to-date return by Nifty 50 is one of the best-performing indices. The graph clearly shows that Nifty 50 is performing better than many other markets.

Many market experts are voicing concern about this rise in the equity market and are forecasting deep correction sometime in the future. So we will try to first understand what is making the equity market move ahead and then what are the events or triggers that can stop its march ahead.

Liquidity

Liquidity boom across the globe has remained one of the key reasons for a surge in the equity market. While liquidity surplus is undoubtedly likely to sustain for a couple of years more, the Federal Reserve has initiated discussions on tightening balance sheets and higher fed rates sometime in 2022-23. The ECB is also likely to end the pandemic emergency purchase program (PEPP) by March 2022. So the liquidity will remain abundant for a while globally.