Is the stock market on a different planet? Here’s what the FM has to say

Finance minister Nirmala Sitharaman doesn’t agree with the sentiment that there’s a disconnect between the inventory market’s present run and the true financial system. On a query by ET on whether or not the hovering bourses have been out of sync with what was occurring on floor, Sitharaman mentioned the rally had sustained via 2020 and the second wave and was “not a blip”.

“I’d say that could be a matter of debate which is happening. However it could not have sustained itself via 2020 Covid and thru the second wave, getting into into the second half of 2021. So, it isn’t a blip is what I really feel.”

Benchmark indices hit recent file excessive immediately as retail traders continued to purchase aggressively out there unmindful of the extreme valuations, significantly within the broader market.

The anomaly was raised in a Parliament query too earlier this month. In a written reply within the Rajya Sabha, Sitharaman mentioned the inventory markets have been rising in anticipation of a revival within the financial system because of the authorities’s stimulus measures. Market volatility has been declining since March 2020, she added to underline her level.

“Stretched valuations of economic belongings pose dangers to monetary stability. Banks and monetary intermediaries must be cognisant of those dangers and spillovers in an interconnected monetary system,” wrote Reserve Financial institution Governor Shaktikanta Das within the Monetary Stability Report earlier this 12 months.

RBI and Sebi have been flagging considerations in regards to the monetary markets over the previous 12 months, whereas taking measures to take care of macro-financial stability. In August final 12 months, Das had hinted that there may very well be an imminent correction within the buoyant inventory markets.

The regulator additionally mentioned that whereas the energetic intervention by central banks and financial authorities has been capable of stabilise monetary markets, there have been potential spillover dangers attributable to this disconnect between sure segments of economic markets and actual sector exercise.

“Financial analysis on inventory markets clearly highlights {that a} key indicator of inventory market indices being overvalued is excessive volatility within the inventory markets. On this context, it’s famous that inventory market volatility as represented by India-VIX index has decreased significantly since March 2020,” mentioned the FM.

Plentiful liquidity throughout the globe has led to traders reaching for greater returns, stretching the disconnect between monetary markets and actual sector exercise.


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