Stock market is not a barometer of the economy

The stock market is currently flooded with cash flows. This was the factor behind the jump in the stock market over the past six months. The money raised by the central banks in various countries through stimulus packages has stimulated the stock market. The market has made such a leap, largely ignoring other external factors.

The Indian stock market has seen strong gains over the past six months. The market is now just below 8 per cent of its all-time high. The market is up more than 50 per cent from its March low. Foreign investors have invested heavily in the Indian market in recent months.

By the end of 2021, the central banks in the G4 countries are expected to raise another $ 12 trillion. This printed money is stimulating the global financial markets.

This trend in the stock market is likely to continue. Liquidity is the key factor that drives the market to move forward. Apart from this, there are various factors that drive the market forward.

Vaccine trials for COVID-19 are in full swing and the market has been given a boost. On the one hand, despite the rapid increase in the number of COVID patients, the successful trial of the vaccine continues to strengthen the stock market. India is also conducting research experiments to develop the vaccine. Apart from this, India has also entered into agreements with foreign companies for developing vaccines. This is to make the vaccine available without delay.

As expected, the monsoon was good this time. This gives impetus to the hope that the rural economy will improve. In this case, the rural sector will be able to provide the greatest support to the economy. The better the monsoon, the better the crop and it will support the GDP.

Companies released better-than-expected quarterly results, boosting the market. Concerns that the impact of COVID on the earnings of companies will be too great have led to a sharp revision in stock prices in the past. But the quarterly results in general were not as bad as the market thought. Surprisingly, the market approached the quarterly results as if it would be a big deal even if the revenue for the expenditure was found, according to reports from several companies. The main reason for this is that corporates have been cutting costs and maintaining financial discipline with a long-term view.

While these positive factors exist, there are also potential factors that can prevent further growth in the market from going beyond a certain limit. The US presidential election in November is another important event that will determine the course of the market. According to a recent poll, Donald Trump has a 40 per cent chance of winning. But with the election looming, the market is hoping that trend will change. That is why the market is ignoring the dominance of Trump’s rival candidate in the poll results. Trump is likely to make announcements that will appeal to voters before the election. At the same time, it is certain that the market will go down if the current survey results do not change. If Trump does not return to power, the market will collapse.

Another factor that could adversely affect the market is the adverse effects of the trade war on the global economy. Global hostility to China has led many countries, including the US, to reconsider their trade policies in the wake of the global spread of the coup. If Trump tightens his grip on China, the trade war will adversely affect the global economy.

At the domestic level, the fact remains that the economy is in a slump. The non-performing assets (NPAs) of banks are likely to increase due to the coup. Economists like Raghuram Rajan have warned against this. If this situation exacerbates, the already high credit crunch of banks, it is likely to be reflected in stock market performance.

Considering all these factors, both positive and negative, the stock market is more likely to move forward. At the same time, the market is not expecting a surge like the one seen in previous months. The market is expected to trade within a certain range for the next six months.

Recent developments in the market have shown that the concept of the stock market as a barometer of the economy is only on paper. Despite the sharp decline in the Indian economy in the April-June quarter, the market did not pay much attention to it. The market is moving in a way that is unrelated to the real economy.