Soaring Stock Market Indices & Feeble Economy

A surge in the stock market occurs when the demand for financial securities exceeds their supply (somewhat in the manner of fish markets). Unlike fish though, which are not easily storable, securities represent a variety of ownership rights over existing durable assets held by firms and used for their day-to-day operations. Purchase and sale of financial securities represent changes in ownership of already existing physical assets and not the creation of new equipment to increase productive capacity, employment and economic growth.

So what affected the Indian Economy and Stock Market that even when economy was trumbling the Stock market Indices were Making New Highs. To understand this conundrum lets dial back a few months back to May 2019. Everybody thought that a struggling economy would dent Prime Minister Modi 2014 mandate but he shocked the whole world by improving upon his tally by crossing a breathtaking 300 seats in 2019 Lok Sabha election.The market broke into euphoric dance they had crazy expectations,understandably surely the markets thought he would use his vastly enhanced political capital to finally essay deep,difficult Structural reforms to unshackle the economy once in for all.

The second Modi government first budget was a very unusual tax and spend kind of document,among several excesses it unwittingly brought investors under a Super rich tax of nearly 43 percent & thats when what the foreign investor felt spurned and they sort of panicked and therefore they voted with  their feet the market then tumbled nearly 10% threatening to test much lower bottoms,that’s when the government learned a fatal lesson - the Modi magic can bewitch an electorate it can wow foreign leaders but it simply cannot forestall the markets fury. So even a indomitable prime minister had to roll back he cut India corporate tax rate by an unbelievable eye rubbing 10 percent  point in one swish of an axe.And for new manufacturing companies it was slashed to around 17 percent. Now that’s perhaps the lowest in developing economies.the government also admitted its mistake in levying the super rich tax on foreign investors.when all of the good news came all together the market abruptly changed courses and climbed to record high within weeks this sort of turbo charged action by the modi. Ever since that U-turn the government has been accelerating in that reverse direction of more & more reforms. Be it decision to sell BPCL to a private Investor for close to $10billion. Also made Air india far more salable by now permitting a 100% equity sale by transferring a debilitating debt burden out  of balance sheet.

The depth and duration of India’s growth slowdown, prolonged financial stress among rural households, weak job creation, and, more recently, a credit crunch among non-bank financial institutions have increased the probability of a more entrenched slowdown. Lets see what Modi 2.0 has to offer as they are coming up with the reforms every week just like a Movie & hope we achieve the target of becoming 5 trillion Economy By 2022.