Vishal Bhaveja is a 27-year-old Forensic medicine Doctor in Bhopal. His parents get worried when they discovered that Vishal invested his savings in equity mutual funds last year but their fear vanished when Vishal started profiting from the investment. they advised Vishal to invest more in stocks
This has been possible because of the high growth in the Indian stock market. Recently, the Indian stock exchange crossed the valuation of $3 trillion for the first time and became the world's 8th biggest stock market. Because of this growth people like Vishal have invested in the stock market
But what's surprising is that while the stock market is flourishing, the economy has been going down. For example, India's economy contracted by 8% last year. Moreover, 75 million Indians were pushed into poverty and the middle class shrunk by 30 million and the pandemic isn't the only instance where there's a disagreement between the stock market and the economy
As we know between April and July last year while the economy was falling stock market was rising. It's due to two reasons. First the stock market isn't about the entire economy
The second reason: the nature of the stock market and economy are different
The stock market is forward-looking and looks towards the future. Whenever someone invests in the stock market they think about the future of the corporates. However, the economic indicators are backward-looking As the GDP data tells us what happened in the previous quarter or year. So the stock market is forward-looking while the economic indicators are backward-looking
There are three reasons why the Indian stock market have been rising during the pandemic
. The first reason is the wealthy people of the world. During the pandemic, the rich have cut their spreading. We can use data from America as an example since there are no such data available in India
Between May and June 2020, the top 25% of the richest Americas cut their spending significantly This isn't surprising as the travel industry, restaurants and shopping malls are shut since they aren't spending the money they can invest in somewhere.
The second reason behind the growth Is the increase in digitisation which has particularly helped technology companies as Indians are readily adopting zoom, social media, streaming services and digital payments. Digital payments increased by 80% in 2020. The increased digitisation attracted foreign investment in companies like JIO
The third reason behind the rise in the stock market is the increase in new investors. During the 2020 lockdown, many students and youngsters who had enough money and time started investing in the stock market
