The Reserve Bank of India has given cautionary advice about the continuous rise of the stock market. It has said in its report that the boom in the domestic stock market is a bubble. This boom is especially not true when the economy of the country is projected to decline by 8% in this current financial year.
In its annual report, the Reserve Bank said that there is a huge gap between the real economy's recovery prospects and the prices of stressed assets. This is a matter of concern for global policy. The BSE Sensex touched a level of 52,154 on 15 February. It is currently trading between 50 and 51 thousand. It is trading up 100% compared to March 23 of the previous year.
The Reserve Bank has said that it is a risky bubble. The money put in for the recovery of the economy can cause inflation in the prices of properties. The market is mainly driven by money supply and investment by foreign investors. However, foreign investors are continuously withdrawing money this month. In April too, he had withdrawn a lot of money from the market.
In such a situation, some experts believe that the market may remain in a period of further decline. The Reserve Bank said that the boom in the stock market between 2016 and early 2020 was because interest rates were low and the equity risk premium was also low. At the same time, the estimate of earnings was also higher. Equity risk premium means the benefit an investor gets from the risk-free stock on the market. The Reserve Bank said that the rise in risk premium in Covid-19 is a matter of concern.
The annual report says that the past year has left a 'wound' on the economy. The vaccination campaign amid the second wave is helping to overcome the cautious expectation due to the vaccination campaign. With the second wave, a round of change in growth rate projections has begun. For 2021-22, the Reserve Bank has projected a growth of 10.5% in the economy.
The growth rate is estimated to be 26.2% in the first quarter of the current fiscal, 8.3% in the second quarter, 5.4% in the third quarter, and 6.2% in the fourth quarter. The report states that a mixed picture is visible for the beginning of April and May. The collection of Goods and Services Tax (GST) in April has crossed the Rs 1 lakh crore mark for the 7th consecutive month. This shows that the construction and services sector is booming.
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