Sensex's scaling of Mount 50,000 on expected lines, but it's time to be cautious

To say that India's stock markets are on a fire is a gross understatement. With the benchmark BSE Sensex successfully completing the monumental feat of scaling the Mount 50,000 points milestone on Thursday, the country's stock markets are in a totally different league now.

And it's a historic day for Sensex which began on a modest scale and reached 100 points in April 1979. The index which consists of 30 stocks crossed 1,000 pts milestone in July 1990. That means the index went up by 50 times in the last 30 years to march past the 50,000 mark on Thursday. Of course, the index retreated from its record high and closed below 50,000 mark at. But it is a well-established fact now that the index would settle above the coveted mark sooner than later.

Haunted by the Covid-19 pandemic, the Indian stock markets hit a nadir in March last year. However, the markets scripted a remarkable rebound, with Sensex doubling in value from its March lows.

But the stratospheric rise of stock market indices came amid gloomy economic indicators that India's economy churned out on the account of the Covid pandemic, which originated in China and engulfed the world within no time. The total lockdown imposed by the Narendra Modi government for nearly three months from March 23, 2020, took a heavy toll on the Indian economy. As a result, the country's GDP contracted by a whopping 23.9 per cent duringthe April-June period. Though economic activity picked up subsequently, GDP remained in the red zone during July-September period, contracting 7.5 per cent. Though the Reserve Bank of India maintained that the Indian economy would bounce back into the green zone in the third quarter, it's too early to say whether RBI's estimate will come true.

In this backdrop, bullish rally in the stock markets paints a contrasting picture. It's a fact beyond any doubt that India has inherent economic strengths and its economic fundamentals are strong. However, a record stock market rally amid a gloomy economic performance needs to be taken with a pinch of salt. One positive factor that is driving the stock markets is the uninterrupted flow of funds from foreign portfolio investors (FPIs). FPIs invested a whopping Rs 2.07 lakh crore between April and December 2020, improving the market sentiment. The start of the vaccination drive in India and around the world also infused confidence among investors. So were also the plans of stimulus measures by the central bankers.

But still, it's time to be cautious about stock markets until the economy recovers most of its last ground.