Bombay Stock Exchange touched a new height of 51000 mark recently. Economist usually look at Stock Exchanges as Economic Indicators and quantification of growth of the economy. Is the Economy really surging so upwards that the stock indices and index going historic high? Is the fundamentals are so strong and a bonafied upward rally is justified?
Let us take few economic figures for instances. Index of Consumer Economy which is represented in Passenger Vehicle Sale is down 100% on year on basis. It was -30% in May 2019 went up to -100% and in April 2021 it again have -4.3% growth. Similarly in Tractor Sales it went -60% during the fiscal year and now recorded 5.2% growth, YoY, Broadband Subscriber base seen down 17.9% since May 2019, Domestic Air Passenger down by -22.7 % YoU since May 2019 as recorded in April 2021.
In Producer Economy: Core Growth is -1.2% in March 2021, PMI Composite is up by 55.4%, Bank’s Non-food credit down by -5.8%, Rail Fright Traffic up by 5.1%, YoY in April 2021.
In External Sector: Import Cover (Forex Cover in months) grew 13.3, Rupees to dollar lost -2.3%, Labour intensive Sector exports grew 3.9%, Reade Balances -19.8.
Ease of living: CPI -5.7%, Core CPI -5%, Real Wage growth -0.3% and labor forces participation rate -40%.
All core indicators are showing negative growth trend and besides this, inflation is rising, and there is cash crunch / liquidity crunch in the market. Small savings percentage is reduced and because of lock down, middle class have lost all savings and now in reserve to run their homes. Because of this, all fixed deposits and savings were liquidated by people.
Banks will soon come in negative earnings as savings and small investments, fixed deposits and recurring deposits are liquidated by customers. Corporate are hiding behind lock down and not paying because of moratorium period of lock down. Bankers will soon enhance the rate of interest to lure deposits. This will be additional burden on borrowers. corporate and industries have slow down and not running 100% capacity and because of that demand for credit money is almost lowest in last three decades.
Then why Bombay Stock Exchange touched 51000 mark? Is there a big IPO coming? Is speculations by FII in offing and all of a sudden a big bump expected? Or is it that the banks are offering less interest on FDs and hence investors have moved to stock market trading? Is mutual funds are capitalizing on their presence? Or is it book building on non core industrial stock run?
Whatever is the answer, but one thing is certain, this 51000 mark is not an indicator of fundamental of economy. Speculations and Profitmongers are in offing, for sure.