Indian Economy:

Roaring stocks, struggling economy?

Markets are rising in times of
slowdown: critically discuss

Is it an anomaly? Discuss the economy

and market relationship in 2015-16 as a
similar case.
 Indian economy: slowdown
India’s
 GDP growth plunged to six-year lows in the April-June and July-September
quarters of 2019-20 with most experts predicting that full year growth will struggle to cross
5 per cent.
REASONS

struggling
 rural economy due to limited growth in Minimum Support Prices (MSP) and
liquidity issues amongst NBFCs which made financing difficult.
The consumption weakness : cautious companies : limiting their capex plans leading to

a slowdown in sectors like Cement and Capital Goods.
lower spending by the government, liquidity stress amongst NBFCs and slower

transmission of rates from banks : led to a slowdown in the infrastructure, power and
real estate space.
The overall slowdown and corporate governance issues in certain companies : made the

banks more cautious
On the exports front, the trade war between US-China and global economic slowdown

has adversely impacted India's exports as well.  
Indian market: roaring with optimism

End of 2019: Position of NIFTY and SENSEX:

record setting: reasons
selling by the FIIs, continued domestic inflows
into mutual funds
the RBI and government have taken several
steps 
The government’s measures to lift economic growth and sentiment:

scrapped plans to impose tax on overseas investors,

slashed corporate tax for all companies to levels on par with other emerging
economies
announced a Rs 25,000-crore fund to complete real estate projects stuck for
want of cash.
He’s also eased foreign investment rules in retail, manufacturing and coal
mining, merged 10 state-run banks to create four big lenders,
the Reserve Bank of India, which has cut interest rates five times this year,
The government too has announced several measures including corporate tax
cut, easing of FDI norms, GST rate cut (in certain segments) and re-
capitalisation of PSU banks.
Explain the discrepancy:

Markets and the economy can and often move in different directions as
there are different factors at work.

Economic conditions, government policies, sectoral outlook, growth momentum, customer

demand, easy availability of cheap credit often affect both economic growth and the stock
market.
But financial markets and investors are also often affected by global developments such as central
bank balance sheet expansion, falling rates and easy money availability and global fund flows.
Given that markets and investors are also often forward looking, bad news tends to get
discounted early and quickly with the focus shifting to remedial actions by governments and
companies. This shows up in stock prices, as it is doing today,

Information asymmetry and the nature of investing play a huge role

Conclusion:

A lopsided rally : it fully reflects a struggling economy with only a few

sectors or companies doing well.

But not just stock investors but strategic investors are also bullish about
economic growth picking up next year. (give statistics of FDI and FII flows)

such a large deviation between the benchmark and broader markets does not
give a true picture of the economy and may continue to result in knee jerk
reactions in between which could unsettle the market participants.