India de-coupled with India

Why our market is not in sync with all the news on economic fundamental. Who is right, market or economy?

Q4 GDP at 5.47% is lowest in last 3 years, PMI reading is trending below 50, Trade deficit is increasing with current account deficit at 2.4% is highest in 4 years, retail and WPI inflation are trending up, demonetisation impact as per first reading is discouraging, final reading of Monsoon is poor with uneven distribution leading to flood in some parts and drought predicted in other parts of Country, Crude price is inching up, PSU Banks continue to struggle under NPA with promised capital infusion still to come in, Private Investment is off the radar, new job creation is minuscule, start-ups are going belly up for want of funds.

Sensex at 32,272.61 and Nifty at 10.085.40 are at their peak levels, Forex reserves hit $400B.

Both statistics are from last 45 days.

To an alien who landed today and read both numbers, will conclude that one country is wretched and another is prospering. He will be mighty surprised if told that both information pertains to one Country, Incredible India.

Does this mean India has decoupled from India. At one level, this looks like a very likely scenario. Our macro & micro economy published (projected seems great?) indicators are poor & discouraging but if you watch our markets, the see-saw is now mostly linked to global indicators. Even if India PMI has dipped but China manufacturing numbers is strong or US employment data is positive, markets will move up. Conversely, if India inflation is down but due to Irma hurricane, crude prices has firmed up; markets will go down.

During last year global crisis, we were boasting that India is decoupled with global economy and hence the crisis is insignificant for India. Part true, but not entirely as we seen subsequent and delayed impact.

Since then, it seems we have moved to other extreme. While domestic economic indicator is weak, market is still going contrary fuelled by overdose of liquidity as both FED and EURO Central banks have still to curb / hold bond purchase? Post demonetisation, even domestic funds / financial institution, retail investors are flushed with liquidity, with real estate sector in limbo and no private investment is coming up, all are flowing into one direction… market.

Investors are holding on to any good new, however irrelevant it is?

All are talking about impending crash. But wish & hope that Sun never set.

Logic says, it will not sustain, it will collapse.

But we all are busy manipulating logic.

As happened in 2008, if market has to sustain its new found glory, global good news will only take it so far. Domestic fundamentals has to improve and all current information has to be feed into market to take a sensible long term approach. It does not mean that there is crisis, but current euphoria is not aligned to ground reality and sooner market found its feet, we all be less bruised.

India can’t be decouple with India; however incredible we might be.

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