The 30-share key benchmark index Sensex briefly crossed 50,000-mark on Thursday. Gains in non-bank financier Bajaj Finance, two-wheeler manufacturer Bajaj Auto, and conglomerate Reliance Industries supported the Sensex.
ETCFO spoke with a handful of economists and Chief Finance Officers for their reaction on hitting the 50K mark and the implications for the real economy.
To Vivek Kumar, economist, at QuantEco, the run-up has happened in the backdrop of global liquidity glut, created by unprecedented accommodative monetary and fiscal policies currently followed by most developed and emerging market countries in the world in the wake of mitigating COVID’s economic impact.
“Investors, especially global, are also optimistic about India’s importance as a destination for global investments, which has been upheld by gradual policy liberalization and implementation of structural reforms,” Kumar said. In the near term, the cheer could also reflect positioning before the announcement of FY22 Union Budget, which is expected to double down on growth supportive measures for the economy, this expert added.
Source: BSEA Chief Financial Officer at a private recruiter echoed the same narrative. He said India is sending right signals to global investors by continuing to undertake structural policies like labour laws reforms. “India is amongst few countries where the economy is back on its feet faster than expected. This simply gives confidence to investors,” TeamLease Services CFO Ravi Vishwanath told ETCFO over the phone. Going forward, likely sustained corporate earnings may continue to lend momentum to Sensex, he said.
Of late India has been witnessing recovery in the real economy following relaxation of pandemic restrictions. Most high frequency indicators, including the government’s goods and services tax collections, have shown a continuous sequential improvement. Businesses, too, are back to hiring after slashing jobs in the early part of the pandemic.
HDFC Chief Economist Abheek Barua offered a slightly contrarian view. He cautioned that there may be a strong disconnect between Sensex and the real economy as noted by the RBI governor Shaktikanta Das arguing the path of the recovery still remains uncertain.
“As the RBI Governor has noted there seems to be lot of froth in the asset markets. This is not only true for India but other economies too. This run-up is driven by liquidity. While investors have every reason to cheer, but whether that reflects the underlying economy, that is an open question,” Barua told ETCFO over the phone.
The RBI has projected bad loans ratio in the banking sector to surge to 13.5 per cent in September 2021 from 7.5 per cent in September 2020. This is something seen as worrying for the real economy, but may not necessarily been reflected by the Sensex.
A CFO at a wire and cable manufacturer backed Barua’s point, arguing the financial markets may not completely provide the health of the economy. “One needs to better see absolute GDP numbers to assess real economy,” the CFO, who did not wish to be identified, told ETCFO.
As per the official estimates, India is seen contracting a record 7.7 per cent in the financial year 2020-21, its biggest slump in over four decades.