One might wonder why the stock market is not reflecting the real market situations. Why it is making new records, and positive ones at that, and making Indians top 5 richest people in the world while we are now officially the second worst hit by the virus. Simple reason: the market has already encashed unlock 8.0 because that's what the how the market works. It is driven by human emotions about the future.
Simply put, people are expecting that after everything is back to normal, not the new normal but the old normal of crowded unmasked markets everything will be just the way it used to be. They will get back their jobs, prices of fruits and vegetables will fall back and they can go to their favourite restaurants again. even though they are trying to adjust to the new normal of 6 feet apart, mask and hand sanitizers, they just cannot come to terms with the fact that this won't end so easily. It's going to last for a while. It's true that we are already in unlock 4.0 but it's also true that every day we are seeing record high number of cases. So unlock 8.0 is a far distance dream and it will take a while for this dream to come true. Rather this dream might not even come true. sorry to break it to you but the economy won't be the same as before after everything ends.
Why the economy won't be the same as it's pre lockdown levels?
To answer this question we have to dig a little deeper. Businesses do not operate in isolation. They are linked to each other as suppliers and customers. As the lockdown keeps extending, businesses who aren't prepared for the worst will feel a cash crunch and will eventually have to shut operations. Out of these shut down businesses very few will see a sunrise after the economy fully reopens. Some would've lost their market share, some the willingness to continue the business and some their lives. And with the shutting businesses their suppliers, customers and their complementary businesses will also have to take a hit. And then the ball will be in their court to decide whether to keep operating or to shut businesses. And thus the chain reaction.
Sadly people have not come in terms with this bitter truth and thus are optimistic about the future. And the same is true in foreign stock markets also. However since our GDP data came (which can be a whole different topic in itself) people are realising that we as a country didn't take much effective policies to tackle the pandemic, rather be focused on Ram Mandir, Exams, justice for SSR and what not. In short everything but the migrant's apathy and unemployment rate. And the result of this is reflecting in the Nifty 50 and sensex which has been in red for the past few days. However, this red doesnot symbolise that the dalal Street has started its backward run. Rather, to be honest with you the market is now more volatile than ever. If you are a trader you can cash on this new opportunity but if you are an investor just remember:
"Be fearful when others are greedy and be greedy when others are fearful"
- Warren Buffett