Indian economic growth rate – Is it for real? By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

June 17, 2015 | Posted by bobbysrinivasan << back to blog

The Indian stock market Sensex index was just around 16,000 in May 2012 reached a high of 30,025 a few months back and is now trading around 26,000. The causes for this bull run are many.

The US interest rate plunged because of QE1, QE2 and QE3 during which 4 trillion US dollars were pumped into the US economy. A part of it found its way to the Indian stock market. It was speculative money which drove the market to dizzying heights.
When PM Modi came to power in May 2014, the market believed that this is a new beginning and the new NDA government will bring in many reforms in labour laws and land ownership and its usage and that this will boost corporate profitability.
PM Modi travelled across the world looking for trading partners and new investors with a promise of complete transparency and open door policy.

What has changed now in this short-period of one year? Infact all macro-economic factors are favorable to the stock market run up. Why then is the Index coming down?

Rajan has lowered the Repo rate by 75 basis point, which is very positive of the market.
The CPI had dropped to 4.6%. Year on year and the WPI is in fact has a recent reading of minus 2.7%.
The threat of the US interest rate moving up in the near term has disappeared because of the announcement of negative economic growth.

So what has gone wrong? The answer is both fundamental and sentiment.

The corporate profit growth in the last four years has come down by 27%.
The banks NPA is going through the roof. Even Dr. Rajan is extremely worried about this development.
The FII money is flowing into China where the market has already corrected significantly.
The sentiment about the market has turned sour. The last 2-3 months the market has dropped several times by more than 600 points, creating a very high volatility. Thus driving small investors.

The investors, especially the retail one is rushing to the exit door. This is a well-established behavior. They can’t take the volatility. Given this market scenario, it is hard to believe that our economy is robust and growing steadily.

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