A Huge Disconnect Between Markets And The Real Economy

Abstract

After the lockdown, the Sensex not only recovered the lost points but it has gained extra points and the rally is still going on. The market is overvalued given the fact that pandemic parity needs more time and there is a Bull Run by FII hoping to get better from the Indian growth rebound. But for the time being the way foreign exchange reserve is building up has made the management of liquidity too difficult. The excess liquidity is being utilized as SLR which cannot continue given the fact inflation is too high. The government is not thinking in terms of sustaining growth momentum in the long run which demands solving the spike in inflation due to real changes and financial changes due to FII. More than FII, FDI would do better services which when gives strength to the economy as well as capital convertibility on large scale.