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Current Affairs

Sensex grows above 50,000

Date: 23 January 2021 Tags: Miscellaneous

Issue

The BSE Sensex has crossed the 50000 mark for the first time in its 42 year history. It has recorded a compound 15.9% growth.

 

Details

  • Only five companies that were initially part of the index retain their place — Reliance Industries, HUL, ITC, L&T, and M&M.

  • Thirty-five years ago, there were no IT companies and banking stocks in the benchmark index but now it has 9 stocks from banking and finance, and 4 information technology companies.

  • Since April 1, 2020, inflows have hit a record Rs 2.41 lakh crore. The system is flush with liquidity, which is one reason for the non-stop rally.

  • The latest spike that has pushed the Sensex past 50,000 is primarily on account of the smooth transition of power in the United States after the deadly January 6 siege of the Capitol. 

Reason for growth

  • Analysts expect the combination of strong capital inflows, low interest rates, leaner corporate balance sheets, and steps taken by the government, to quicken the pace of economic recovery in India.

  • GDP is expected to rise by 0.1% in the December quarter. In the first half of 2021-22, the economy will grow at 14.2%, according to a Reserve Bank of India study.

  • Apart from robust FPI inflows, a big reason for the rally has been the impressive corporate results in the second and third quarters.

  • With the uptick in demand for steel, cement, and real estate, as well as in consumption, analysts expect to see a restarting of investment by the corporate sector.

Concerns

  • Analysts say that the rise in inflation, tightening of monetary policy, and increase in interest rates will also be critical for the markets.

  • If the US decides to increase rates, money will start flowing back from emerging market equities to US treasuries, and that may result in a correction.