India’s record run in the stock market raising dangers for economy: Research

A get in customer demand, record-low interest costs and further developing possibilities for the manufacturing sector will most likely fuel the rally in Indian stocks, even as the bewildering speed of gains builds hazards for the economy.

These are the finishes of new research from Bloomberg Intelligence and Bloomberg Economics after the NSE Nifty 50 Index climbed 130% to a record from lows contacted in March 2020, upheld by the central bank’s liquidity injections, a large number of new retail investors, and the regulatory crackdown in China. The convention has added about 1 percentage point to GDP development each quarter since October-December.

“The case for India’s equities remains structurally positive, we believe, amid resurgent consumer demand, manufacturing in a ‘China Plus One’ world, regulatory overhaul and the trajectory of monetary and fiscal policy,” Gaurav Patankar and Nitin Chanduka, analysts with Bloomberg Intelligence, wrote in a note.

In any case, the sharp run-up in gains has expanded the economy’s vulnerability to a market setback.

The Nifty is presently trading at 22.2 times estimated 12-month earnings, well over its five-year average of 18.5. By comparison, the MSCI Emerging Markets Index is trading at a multiple of 12.7.

A retreat for the Nifty, trading at about 35% over its historical trend level, would lessen GDP by 1.4% in a similar quarter of the shock and by 3.8% over the next year, Ankur Shukla, an economist with Bloomberg Economics, wrote in a separate note.

“The higher stocks climb, the greater the risks to the economy if they correct — an important consideration at a time when the Federal Reserve is weighing the timing of tapering stimulus,” Shukla said.

Disclaimer: The views, suggestions, and opinions expressed here are the sole responsibility of the experts. No Planet Economic journalist was involved in the writing and production of this article.