There is a visible disconnect between the market and the economy. Why do you think this has happened? Moreover, how the stock market is going up despite the disconnect?
Markets always look ahead, whether they are heading upwards or downwards. Generally, they look to the future over the next 2-3 years and how the economy would look like. India has always been seen as a growth market, notwithstanding the fact that in the last 10 years, the average profit growth was less than 10 per cent. However, during the last year, corporate profits have risen much faster than before. Reacting to lockdowns, a lot of companies have either redesigned their business models or taken advantage of their industry consolidation and picked up market share from fragmented smaller players.
The overall economy had significantly slowed down and has just started to revive. We could have temporary glitches because of new lockdowns, but the stronger companies have got stronger.
Second, for the stock prices to move either up or down, liquidity also plays a very important role. Today, the world over as well as in India there is a lot of liquidity in the hands of investors, that is getting invested in equity funds and stocks. So the demand for equity as an asset class has only increased over the last few years.
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