Understanding bull run in BSE

Political certainty and high growth, however, are not the only tailwinds for India’s equity markets at the moment. There is good reason to believe that the ongoing equity market bull run is also symptomatic of the ongoing churn within the economy. There is more than enough evidence to show that bigger firms and households have done better than their smaller counterparts in the post-pandemic phase. This is likely to have created higher profits for bigger firms and higher savings for well-off retail investors, triggering a virtuous cycle in the equity markets.

To be sure, things could have become difficult if the unequal or K-shaped growth in the post-pandemic phase had created political anger forcing the government to loosen its fiscal purse strings. However, the interim budget presented by the Narendra Modi government in February shows that the government is not worried about any such political backlash. The current government’s ability to mute inequality-related policy tensions is, for all practical purposes, unique in post-reform India.

Is the ongoing bull run in equity markets an unambiguous good for the Indian economy? Stock markets, more than anything, are seen as a bellwether of economic sentiment. However, in an economy, where economic fortunes are sharply divided along class lines, even the sections which are not experiencing an improvement in economic sentiment may also make spending, investment and borrowing decisions based on misplaced exuberance. This is exactly what RBI has been trying to flag in the recent past.