The recent plunge in the stock market is causing many investors to wonder whether the bull run is over. However, there are some indicators that suggest that the stock market may be on its way to recovery.
Average performance of the BSE mid- and small cap indices during the months of June, July and August
The average performance of the BSE mid- and small-cap indices during the months of June, July and August was negative. The decline in markets can be attributed to uncertainty around the US Federal Reserve policy meeting. It was also affected by a spike in the price of crude oil. Nevertheless, global equities have managed to make a decent run in August. The S&P 500 index posted a solid gain in July. Similarly, the Nifty 50 is up 18 percent in the same period.
While the benchmark indices have continued to make steady progress, the market is still very much in a downturn. Analysts say there is still room for upside in September. However, a lot of uncertainty has been surrounding the US Fed's policy meeting and the outcome of monetary policy tightening decisions. There have also been worries about China's COVID (Counter-Violent Internet & Other Demonstrations) crisis.
While the small-cap and mid-cap indices were underperforming, large-caps have done well. The BSE Mid-Cap index has lost 0.78% during the month, while the S&P BSE Small-Cap index has regained 1%. Since January, the two indices have outperformed the Sensex and the Nifty, with an average return of 2.49% and 5.14%, respectively.
The market was awash in uncertainties during the first half of the year, as the Fed offered hawkish signals, and the markets were in the grip of a severe global economic slowdown. Fortunately, a few companies were able to pull out of their slumps, and the recovery should continue in the second half of the year. The market cycle, though, tends to favor the larger caps over the smaller ones. In particular, the BSE-500 index is dominated by large market capitalization companies, and this tends to cause the Sensex to rally before the small and mid caps. Despite the market's negative bias, experts see ample opportunities in the stock market, particularly in the mid- and small-cap space.
The BSE mid-cap index has fallen from its recent highs of 17000 on 1 February to its current level of 15000 on 16 July. The small-cap index has also fallen, from its recent highs of 18700 on 1 February to its current level of 15600 on 16 July. This suggests that there are some major laggards in the broader market. The laggards include real estate, telecom, metals and healthcare.
While the Sensex has recovered from the recent declines, the small-cap and mid-cap equities have taken a beating. For example, the Nifty mid-cap index fell a sharp 0.63% in January, while the S&P BSE Small-Cap slipped a further 0.52%. While smallcaps and mid-caps have delivered comparable long-term returns to the Sensex, they have underperformed in the last few months.
In August, the S&P BSE Small-Cap, the BSE Mid-Cap and the Nifty 50 all ended the month down 0.23%, 0.32% and 0.78%, respectively. However, the BSE banking index was up 12.4%. FIIs net bought $628mn in the month, while insurance funds net sold $521mn. Amid all this, foreign institutional investors remained big net buyers of Indian equities for the sixth consecutive month. In addition, domestic mutual funds participated in the market, with an inflow of $7.3bn in Q1'21.
Average performance of the FTSE100 index during the months of June, July and August
The FTSE100 index (also known as the FTSE All-Share index) is the market cap weighted average of the top 100 companies listed on the London Stock Exchange. The index traces the performance of the UK's largest companies and is widely regarded as a key indicator of the health of the UK economy. Over the past 35 years, it has provided inflation-beating returns to investors. However, there are many factors that can impact the FTSE100 index's performance. For example, economic growth, interest rates and the nationality of a company can all influence the performance of the FTSE100.
The UK's economy has shown some resilience over the past few months. In fact, it is expected to grow by 3% in the third quarter of 2020. The government is expected to launch a new economic strategy that will help support the recovery. But there are a few indicators that point to a slowdown in the economy. These include consumer confidence and a range of other economic data.
Despite these signs of resilience, the FTSE100 index has declined over 7% year-todate. It has fallen by more than 2% over the month of August, and has lost more than 120 points since its all-time high of 7,904 in late-May. Nonetheless, the FTSE 100 is still in positive territory for the month of November. The FTSE100 index rose by more than 4% in October and posted seven straight weeks of gains in November. After the UK's FTSE100 index reached its all-time high in May, the FTSE100 dropped by 1% in June, followed by a 4% decline in July. In the first half of August, the FTSE100 index grew by 0.05%. In September, it fell by 1.21%.
The FTSE100 index is still down a little over 7% from its early-August peak. The FTSE100 index has also declined by 1% in September and 1% in October. The euro has gained ground against the US dollar. This could indicate softening inflationary pressures. This could help boost sentiment.
The FTSE100 has made an average annual price return of +6.8% over the last 35 years. However, a lot of this is dependent on the time frame. For instance, the FTSE100 has returned an average of 18.2% in a 10-year period, compared to a nominal return of 7.75%. To ensure that the historical FTSE100 returns are meaningful, it is important to adjust the figures for inflation. For example, the inflation-adjusted return for the FTSE100 over the last 35 years has been 5.05%. The Euro Stoxx 50 index, a gauge of the performance of European stocks, rose 22.8% in 2021. In contrast, the IBEX35 index of Spanish stocks climbed by 7.9%. The DAX index of German stocks gained 1.09%. The Italian MIB index of Italian stocks decreased by 1.40%. The Thai Stock Exchange index of Thai stocks increased by 14.4%. The Indonesian Jakarta Composite Index had a 10.0% return.
Average performance of the BSE large-cap indices during the months of June, July and August
The average performance of the BSE large-cap indices during the months of June,
July and August, 2007 was comparatively weak. However, the month ended on a
positive note with all the major groups posting gains. This is a result of cyclical
growth-oriented companies, which led overall monthly gains. In addition, the major
oil companies also logged monthly gains.
As the month drew to a close, the S&P BSE SENSEX closed near its historic high of
16,322. It had opened the day with a peak of 14,028 at 9.58 am (IST). It closed the
month with a total of 61,700 points. The SENSEX closed the month on a stronger
note than the Hang Seng Index.
The S&P 500 broad-market benchmark lost 8.3% in June, while the MSCI EAFE Index
underperformed by 9.2%. This was the best month for the benchmark since
November 2020. Nevertheless, the S&P BSE SENSEX continued to reflect investor
Among the most noteworthy laggards were real estate, energy and health care. The industrial sector remained steady, despite concerns of high inflation. The consumer discretionary and technology sectors recorded double-digit gains in the month. The energy sector also benefited from the continued strength of oil prices. While the overall trend for the equities market has been risk-on for the first half of the year, it is evident that the global economy is still in a fragile state. The Fed has raised interest rates four times, and plans to shrink its massive asset portfolio. These concerns have resulted in mixed corporate earnings. In addition, the labor market has become tight, with the unemployment rate at 3.7%.
In addition, there are risks associated with international investing. The Eurozone remains hampered by the ongoing energy crisis. Furthermore, the threat of lockdowns has led to foreign institutional investors to sell their assets. Political instability, currency fluctuations and differences in accounting standards can have a significant impact on the financial markets.
The BSE Sensex has risen over 25 times from June 1990 to present. The index is calculated using a free float capitalisation method. The index reflects the performance of the top 30 largest financially sound companies on the Bombay Stock Exchange. The SENSEX also contains stocks of ICICI Bank, Adani Ports, M&M, Wipro, Hero MotoCorp, Coal India, Asian Paint and many more.
The S&P BSE SENSEX reflects the overall economic condition of the country. In addition, the S&P BSE Large-Cap index is designed to represent the large-cap segment of the Indian stock market. The largest cap companies tend to be well established and have a good reputation. This makes them less volatile than smaller stocks. It also means that they are likely to earn good returns in the long run. The S&P BSE Large-Cap Index has been a reliable indicator of the performance of the large-cap sector of the Indian stock market. It is a key indicator of the investor sentiment. The index is updated to reflect current market conditions.