share market latest update: RBI risk of the bubble of the boom in the stock markets

share market latest update: RBI risk of the bubble of the boom in the stock markets

Highlights:

  • Domestic markets are seeing strong growth despite a drop of around 8 per cent in GDP.
  • The Reserve Bank of India has expressed apprehensions that this could be a risk of bubble.
  • The Sensex has grown by around 68 percent in 2020-21.

New Delhi
Share Market Bubble: The Reserve Bank of India has said that despite a projected eight per cent decline in the country’s gross domestic product (GDP) in 2020-21, a strong growth in domestic stock markets poses a ‘risk of bubbles’. The Reserve Bank’s annual report for 2020-21 released on Thursday said that share prices in the country have reached a record high. The benchmark index crossed the 50,000-point level on January 21, 2021, reaching a high of 52,154 points on February 15.

This level of the market index is 100.7 percent higher than the decline in the nationwide lockdown (March 23, 2020). At the same time, the Sensex has increased by about 68 percent in 2020-21. The Reserve Bank has said, “In view of the projected 8 percent decline in GDP in the year 2020-21, this condition of inflation in property value poses a risk of a bubble bursting.”

The apex bank said that the stock markets are mainly driven by currency expansion and foreign portfolio investors (FPI) investments. At the same time, economic prospects also contribute to the movement of the stock market, but their impact is less compared to the money supply and FPI. The central bank has said that the main reason for the rise in share prices from 2016 to 2020 has been the reduction in interest rates and equity risk premium. Along with this, the expectation of earning in the future has also contributed to a great extent in this.

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