The Great Stock Market Mystery

Why the sensex is on fire even as the economy hurtles downhill.

- Rashmi Pratap

On March 30, 1992, the BSE Sensex crossed the 4,000 mark for the first time. It took seven-and-a-half years to move up another 1,000 points past the 5,000 milestone on October 11, 1999. But the journey from 5,000 to 6,000 was a short one, less than four months. When Sensex hit the then all-time high of 6,006 points on February 11, 2000, India was well into the worst-ever economic slowdown. In financial year 2000/01, India’s GDP growth hit a nine-year low of 4 per cent with the January-March quarter witnessing GDP growth of only 1.76 per cent. The farm sector was facing a crisis as production shrunk. In the next fiscal, growth in the manufacturing sector plummeted to 2.3 per cent, from 7.8 cent a year ago.

Cut to 2019. The Sensex touched a fresh all-time high of 40,816 on November 20. GDP growth hit a six-year low, rising only 5 per cent, in the April-June quarter. Private investment, as well as government expenditure, is shrinking. Industrial output or IIP contracted 4.3 per cent month-on-month (MoM) in September, the worst since the present series was launched in April 2012, while manufacturing output declined 3.9 per cent.

History is repeating itself, two decades apart. Surprising as it may seem, stock markets continued to scale new highs in both the cases, defying the gloomy economic indicators. “Fundamentals have been fairly weak since December last year. It has been nearly a year and this weakness has intensified in first and second quarters of this year,” says Dhananjay Sinha, Head of Strategy and Chief Economist at IDFC Securities.