Why markets are currently climbing in times of slowdown.
MUMBAI: Investors in the equity markets of India are forward looking. Despite all the gloomy news about a plethora of gloom-and-doom forward on WhatsApp, and the economy in the media, the markets are in all-time highs. BSE’s Sensex touched the 41,000 mark for the first time ever on Tuesday and National Stock Exchange’s Nifty index surpassed the 12,100 markers, in that time when prime financial indexes and a few high-frequency data are at loggerheads with the market’s euphoria.
Its almost as does not give two hoots about the gloomy data. It makes everything look hunky-dory, as it really isn’t. “The Indian stock market is currently depositing in reasonable recovery in the economy and earnings,” analysts in Kotak Institutional Equities explained in a note to customers. Analysts at Jefferies India Pvt. Ltd echoed this view:”India’s equity markets appear sanguine that the worst has passed.”
In other words, the markets are up purely on the hope of a future that is better. And also this dissonance between amounts and the economies causes confusion.
It’s another matter that there’s not anything on the ground. Jefferies India, for example, points out that its activity index slipped in September into a 15-year decrease. The agent’s Activity Index is based on 36 indicators such as power demand, auto sales and credit increase.
The reason for trust is that the variety. Among other things, the Centre announced a cut in corporate tax rate. But analysts worry that these measures’ impact will have a very long time to benefit the market.
The hope rally
Each of of the indicators reveal that the economy is not in a fantastic shape. He adds that global investor sentiment is up, together with monetary easing by the US Federal Reserve, better-than-expected American GDP data and de-escalation of risks.
In the September quarter, earnings for a number of businesses got a boost in the cut. “That is a temporary boost to earnings.
Analysts have estimated earnings that were annual growth year but earnings growth has been just around 5 percent in this period. Therefore, the narrative of hope in the Indian markets isn’t new; it that the degree of hope is becoming greater.
Following a series of bad performances indicated by the high-frequency statistics, the GDP growth rate in the second quarter (Q2) isn’t expected to be any better than it was in Q1. In reality, Bloomberg puts GDP growth at about 4.6% in Q2, even lower than in Q1.
Aside from expect, what else is currently driving the dissonance between the markets and the market?