A social media contact asked a question:

Good morning friends. I was reading the newspaper and saw the Sensex touching an all-time high of 80k. Can anyone help simplify, why is the market is so high when industries and companies are globally low on business, employees are getting laid off, and the job market is weak. Is this a bubble in waiting caused by FIIs?

My response and answer:

1) The Indian index mostly reflects the Indian economy and Indian companies. These are doing well. The Indian GDP is up smartly in the last 2-3 years, industrial policies are stable and encouraging, tax collections are improving, and infrastructure like transportation and electricity are getting better. The recovery from the Covid challenges of 2020 and 2021 has been good.
2) The ex-India global scenario is not so good. USA is recovering from Covid but has election uncertainty, Europe is flat, RoW is bit gloomy due to the two wars. In general, there is high inflation and interest rates. China is struggling with a tariff war with USA and internal policy and capital allocation issues.
3) This in fact makes India an attractive investment destination for global funds looking for good returns. It’s doing the best among the larger economies and is quite open to capital inflows through FPI and FIIs.
4) In India, Equity as an asset class is gaining importance and acceptance for wealth storage and growth – along with the traditional Real Estate. This is mainly due to digital access, ease of transactions and lower transaction costs. Even so, the current Equity penetration is still low, with about 15 crore demat accounts, and even among these investors, a low proportion of financial assets.

In our recent article, we had seen these signs – NIFTY VIX and NIFTY 50: Market Sentiment Post Elections

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