Modi Magic? Sensex Soars Past 75,000 Mark, Investors Gain ₹2.27 Lakh Crores Ahead Of Lok Sabha Elections

Modi Magic? Sensex Soars Past 75,000 Mark, Investors Gain ₹2.27 Lakh Crores Ahead Of Lok Sabha Elections

While the economy will do well for sure, one must be prepared for a correction which can come on account of vagaries of monsoon or lower earnings by companies.

Madan SabnavisUpdated: Thursday, April 11, 2024, 11:15 AM IST
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Sensex is resting its laurels at above 75,000 – for the first time! Investors are richer by Rs 2.27 lakh crores; and that too just before elections. It has been a pulsating ride in the last decade, having touched the 25,000 milestone 10 years back on May 16, 2014, almost dovetailing PM Modi's rise during this period. But is it for real or a manifestation of irrational exuberance? On deeper thought it is a combination of both.

The economy has been projected to do very well in FY2025. Tax collections are up and this means consumption has to be steady. Inflation is poised to come down by Q2, according to the RBI. There is near certainty of continuity, given the sanguine prospects of the government securing another five years. To top it, all companies are expected to do well in Q4 this year. This means that earnings are up and if the economy continues on the current growth trajectory, a replay can expected. Add to this the feel-good forex story of highest reserves and India's bond inclusion, and the big picture is complete.

Cautious experts, enthusiastic investors

It is not just the FPIs but domestic funds and retail which are in the market. Experts – possibly out of sheer habit – are cautious and ready with the statutory warning to be careful while investing. While an upward movement can be justified, the extent to which this is happening can be befuddling. Households are going overboard in channelling savings to mutual funds which has affected banks. The lure of higher returns of 25 per cent has been the driver.

While the economy will do well for sure, one must be prepared for a correction which can come on account of vagaries of monsoon or lower earnings by companies. The fabled Gordon Gekkoin the movie Wall Street had said, "Greed is good." Sure it is but stock markets are a zero sum game. When the engine stops, there will be someone holding the losses. And who will they be, is the question. Hence there should be caution as valuation for moststocks is higher than the thumb rule of 15 or 20. When this happens, at some point a red flag has to be raised.

The author is Chief Economist, Bank of Baroda and author of 'Corporate Quirks: The DarkerSide of the Sun'.

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