India’s big mystery of stock market rally
First-time investors and foreigners spur rally, but belie economic gloom
Of all the countries in the world, the disconnect between rallying global stocks and deteriorating data is probably the most pronounced in India.
The nation’s shares have logged one of the best rebounds from the March lows globally while battling some of the world’s worst economic data. The surge has pushed up valuations to a record as investors look past the grim reality and the world’s third-highest tally in coronavirus cases.
The conundrum doesn’t bode well for Asia’s third-largest economy that’s set for its first contraction in more than four decades. Further negative surprises
■ from macro data or virus cases can unravel a rally that’s added $605 billion in market value from the depths of the swoon to outstrip the government’s stimulus package.
“Any market activity without supporting fundamentals will not sustain,” said C.J. George, chief executive officer at Geojit
Financial Services Ltd., a brokerage backed by BNP Paribas SA. “We are yet to see the fundamentals improving in the country.”
Here’s a look at the contrast between India’s $1.9 trillion stock market and the real economy: Just months into the new fiscal year, the fiscal deficit is close to touching its annual target, depleting Prime Minister Narendra Modi’s government firepower to add to the 21 trillion rupee ($280 billion) stimulus announced in May.
Adding salt to injury is India’s bad loan ratio, which is expected to swell to the highest level in more than two decades in 2021 following the world’s strictest lockdown measures, the central bank said last month.