ATTISO BHOWMICK
governed by a lot of factors.
University of Agricultural Sciences (UAS), Bangalore
Why this Cacophony?
Why the Stocks Lie — The Fallacious Relationship Between Stock Market
The evaluations of the stock market are in disagreement with the macroeconomic variables which define the general economic conditions. While the macroeconomics predictions are extremely bearish, the stock markets seem to portray a raging bull. This dissonance can be attributed to a multitude of complex socio-economic factors, the accumulated consequences of which resulted in such a phenomenon. •
The Irrational Relationship Between Indian Stock Markets and Economy When common economic knowledge suggests that the stock markets should suggest the general performance of the country’s economy, the Indian Stock Markets seem to have greatly differed from this notion. The backbone of the stock markets—the stock prices should reflect the investor’s expectations about future corporate performances, which in turn depend on the economic conditions of the nation. When India experienced the strict lockdowns to tackle the COVID-19 problem, businesses, corporates, factories and shops had to bear consequences, which caused the GPD to shrink to negative points. However, the stock markets apparently emerged to have a mind of its own. It was one of the best performing market in the world in June, 2020, when the BSE Sensex rose to almost 8 percent. This queer phenomenon may seem like a fairy tale being played out, but is surprisingly
STUDENT ARTICLE
Optimistic Outlook of the Future
Stock markets run on predictions for the future. If the future is bleak, the market becomes bearish, and if there is positive news for the future, the market becomes bullish. With the current economic conditions, the investors are surprisingly optimistic for the future. As market trends are always forward-looking, investors already looking towards a fast recovery. The belief that commercial operations will eventually become normal after the pandemic recedes, has actually encouraged a number of investors to buy stocks which has a significantly higher chance of recovery. This has caused a significant buying pressure, and in turn increased the stock prices. •
Intrinsic Make-up of the Stock Market Indices
Another major factor is the giant companies the make up the indices operate under different circumstances when compared to the nation’s small businesses, office workers and the general public. A significant portion of their revenue come from foreign investments. This also enables them to harness more capital and resources to withstand the economic crisis. In fact, market indices like Sensex and Nifty are designed to measure the performance of only the top 30 and 50 companies respectively. •
Limited number of Investors as compared to the population
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