Swarajya Logo
Swarajya Logo
Politics States Economy Society Business Culture Infra Defence World Books Ideas Science Technology Heritage Archives Legal Movies Sports
  • Our Views
    Politics States Economy Society Business Culture Infra Defence World Books Ideas Science Technology Heritage Archives Legal Movies Sports
  • Magazine
  • Store

About Swarajya

Swarajya is a publication by Kovai Media Private Limited.

Swarajya - a big tent for liberal right of centre discourse that reaches out, engages and caters to the new India.

editor@swarajyamag.com

Useful Links

  • About Us
  • Subscriptions Support
  • Editorial Philosophy
  • Press Kit
  • Privacy Policy
  • Terms of Use
  • Code of Conduct
  • Plagiarism Policy
  • Refund & Cancellation Policy

Useful Links

  • About Us
  • Subscriptions Support
  • Editorial Philosophy
  • Press Kit
  • Privacy Policy
  • Terms of Use
  • Code of Conduct
  • Plagiarism Policy
  • Refund & Cancellation Policy

Participate

  • Contact Us
  • Write for us
  • Style Guide
  • Jobs

Stay Connected

  • Artboard 2 Copy 6Created with Sketch.
    Artboard 2 Copy 10Created with Sketch.
    Artboard 2 Copy 7Created with Sketch.
    Artboard 2 Copy 9Created with Sketch.
  • Andriod Logo
  • IOS Logo

Economy

Here Are The Reasons Why A Market Rally Is Sustainable Despite A Sombre Economy

Karan BhasinThursday, April 15, 2021 4:29 pm IST
Sensex
Sensex
Sensex
  • There is a disconnect in the markets at the moment and while we may state that markets are generally forward looking, there are legitimate concerns.
  • Earlier this week, I came across an interesting article by vanon whether we need capital markets. The article was an old one but it raised important points, more so given the present situation whereby stock markets are roaring even as real economic activity has remained subdued.

    One of the key questions that have been posed to me over the last couple of months is regarding the disconnect between the stock markets and real economy. This question has been a repeated feature as often many bankers, analysts, economists and even market participants have raised questions whether the present rally is sustainable or not.

    Needless to say, that Rakesh Jhunjunwala believes that the rally is sustainable – and I too believe that it is sustainable for various reasons. For starters, earnings will pick up post Covid-19 for most firms, and as economic activity picks up we will see significant value addition happening in various sectors of the economy.

    Some firms may go bust as inequitable access to credit and differential impact of the pandemic etc may result in some bankruptcies. However, this process too will lead to consolidation in sectors. Thus, those that make it to the other side will certainly be sound companies that will benefit from the new economic and regulatory regime that is being ushered in India.

    But there is a disconnect in the markets at the moment and while we may state that markets are generally forward looking, but there are legitimate concerns – more so for global markets than India.

    One of the key functions of markets is to efficiently allocate capital. Markets essentially help perform the function of allocating capital and they do so without a financial intermediary.

    There are concerns regarding the ability of the markets to allocate capital efficiently given the extent of imperfections that have occurred over the course of last few decades.

    Dr Anantha Nageswaran holds central bankers responsible for these frictions as they have pushed rates too low in advanced economies thereby resulting in liquidity-based rallies in most stock indices.

    The concern for Indian markets is not with regard to domestic economy, and our economic recovery. The domestic situation continues to remain strong and thus, the risks on our financial sector front are more on the external side.

    It is important to ask whether most companies listed on the US can give the kind of growth in their earnings that investors may desire given their prices?

    Or is it the case that investors may be okay with relatively modest returns on their investments as the risk-free rate (US 10-year bond yields) is lower?

    Is the concept of dividends disconnected with investor behaviour and pricing of stocks of companies? These are some of the questions that remain unanswered, and it poses a challenge for policymakers across the world as they prevent a financial crisis.

    Any change in investor behaviour, perception about the future or even the risk-appetite could induce a volatile period for global capital markets and such volatility does not auger well for emerging markets, including India.

    This volatility may not be limited to just stock markets, but it may spill over to currency markets – as they did in 2013. Luckily, India has substantial reserves and little to worry on that front.

    The big takeaway is that financial markets are increasingly becoming more volatile, and this volatility undermines their ability to provide capital by allocating them efficiently. This could result in a permanent shift in the attitude of some firms towards capital markets as they seek stability in terms of their valuations.

    To what extent is this engineered by the action of policymakers is something that has to be adequately and empirically examined.

    However, there is a strong argument for making financial stability an integral part of monetary policy frameworks given the evidence that mere inflation targeting is not sufficient to achieve the same.

    Now would be a time to embrace the limitations of the conventional monetary wisdom and recognise the limitations of a very narrow objective function for our monetary policymakers.

    Failing to do so now will only imply that we wait for the next crisis to revisit some of these issues – but then again, why not discuss this today rather than wait for the next crisis in the first place?

    Tags
    markets
    economists
    stock markets
    Bankers
    Capital Markets
    Analysts
    Covid-19
    Economic Activity
    earnings
    Stock Indices
    Global Capital Markets

    Comments ↓

    An Appeal...


     

    Dear Reader,

     

    As you are no doubt aware, Swarajya is a media product that is directly dependent on support from its readers in the form of subscriptions. We do not have the muscle and backing of a large media conglomerate nor are we playing for the large advertisement sweep-stake.

     

    Our business model is you and your subscription.  And in challenging times like these, we need your support now more than ever.

     

    We deliver over 10 - 15 high quality articles with expert insights and views. From 7AM in the morning to 10PM late night we operate to ensure you, the reader, get to see what is just right.

     

    Becoming a Patron or a subscriber for as little as Rs 1200/year is the best way you can support our efforts.

    Get Swarajya in your inbox.


    Magazine


    Swarajya Magazine Cover Image
    Merchandise

    Merchandise


      Politics

      Minority Student Scholarship Scam: Aadhaar-Based Biometric Authentication Helps Uncover 6.7 Lakh Bogus Applicants

      Minority Student Scholarship Scam: Aadhaar-Based Biometric Authentication Helps Uncover 6.7 Lakh Bogus Applicants

      Nayan Dwivedi
      3h

      Jammu-Kashmir Ready To Conduct Elections, Waiting For ECI Instructions: Lieutenant Governor Manoj Sinha

      Nishtha Anushree
      5h

      Owaisi Brothers Urge Voters To 'Avoid Overconfidence', 'Exercise Democratic Rights' As AIMIM Bastions Record Poor Polling Percentage

      Swarajya Staff
      6h

      Economy

      Sorry, Cassandras. India's GDP Could Well Top 7 Per Cent In Fiscal 2023-24

      Sorry, Cassandras. India's GDP Could Well Top 7 Per Cent In Fiscal 2023-24

      R Jagannathan
      8h

      India's GDP Grows 7.6 Per Cent In July-September Quarter

      Nayan Dwivedi
      1d

      India's Fiscal Deficit Stood At Rs 8.037 Lakh Crore In First Seven Months Of Fiscal Year

      Swarajya News Staff
      1d

      Defence

      India To Secure Entire Pakistan And Bangladesh Borders In Next Two Years: Home Minister Amit Shah On BSF Day

      India To Secure Entire Pakistan And Bangladesh Borders In Next Two Years: Home Minister Amit Shah On BSF Day

      Nayan Dwivedi
      1h

      Indian Navy Makes History By Appointing First Female 'Commanding Officer' Of A Naval Ship

      Swarajya Staff
      3h

      Centre Putting All-Out Efforts To Bring Them Back: Indian Navy Chief On Veterans Sentenced To Death In Qatar

      Swarajya Staff
      4h

      World

      India-US To Bolster Ties In Pharma, Semiconductor Sectors; Honeywell, Pfizer, Kyndryl, Viasat CEOs New Joinees To Forum

      India-US To Bolster Ties In Pharma, Semiconductor Sectors; Honeywell, Pfizer, Kyndryl, Viasat CEOs New Joinees To Forum

      Nishtha Anushree
      1h

      COP28: PM Modi Proposes To Host COP33 In India, Emphasises On Need For Technology Transfer, Clean Energy Supply Chain

      Nishtha Anushree
      3h

      First Indo-Pacific Conference By India, Australia In UK: Indian High Commissioner Denies Government Involvement In Killings Abroad

      Nishtha Anushree
      5h

      Culture

      Kashi Tamil Sangamam 2023 To Be Held From 17 December To 30 December, Registration Portal Launched By IIT Madras

      Kashi Tamil Sangamam 2023 To Be Held From 17 December To 30 December, Registration Portal Launched By IIT Madras

      S Rajesh
      2d

      M P N Ponnusamy: A Nagaswara Legend Passes Away Almost Unsung

      K Balakumar
      3d

      Streamlined Repatriation: India-US Deal To Fast-Track Return Of Stolen Antiquities

      Swarajya Staff
      4d
      States

      infrastructure


      V Bhagya Subhashini
      1

      Bengaluru Airport: BIAL Reveals Comprehensive Master Plan For T1 Upgrade And T3 Construction By 2030

      2 Mins Read
      Amit Mishra
      2

      Noida Proposes To Build 35 Km Elevated Road Along The Yamuna To Ease Travel To Greater Noida

      2 Mins Read
      Swarajya Staff
      3

      Noida Metro Expansion: DMRC Submits DPR For 11.5 Km Aqua Line Corridor Linking Botanical Garden To Greater Noida Region

      2 Mins Read
      V Bhagya Subhashini
      4

      Chennai Metro Phase II: CMRL Inks Rs 269 Crore Deal With Alstom For 10 Driverless Train Sets

      2 Mins Read