The deserted Bombay Stock Exchange building is pictured as the Sensex went down after a lockdown in the wake of the start of the novel coronavirus pandemic, in Mumbai on March 23, 2020. Photo: The Times Of India

Though India went through a devastating second wave of the Covid-19 pandemic that has taken a heavy toll on the economy, for stock market investors it’s been boom time as the capital markets remained bullish and scaled new heights this fiscal year.

Equity investors have witnessed a wealth addition of more than 31 trillion rupees (US$ 416 billion) in the first four months of the current fiscal year, Press Trust of India reports. Bombay Stock Exchange-listed companies have added 31.19 trillion rupees of market capitalization from the ongoing bull run.

The 30-share Bombay Stock Exchange Sensex jumped 3,077.69 points or 6.21% during April-July, helped by overall bullish sentiment. The benchmark reached its all-time high of 53,290.81 on July 16 and achieved its lifetime high closing at 53,158.85 on July 15.

This is despite the fact that the pandemic had badly hurt the economy, rendering people jobless and denting consumption. In the last fiscal year ended March 31, India’s economy had suffered its first full-year contraction in 40 years.

One of the major factors powering the rally is the creation of huge liquidity as the Reserve Bank of India has kept interest rates low to encourage investments in the pandemic-hit economy. This has led to an increased interest in stocks among retail investors, as they find bank deposits less attractive.

According to a recent State Bank of India study, 4.47 million retail investor accounts have been added during the two months of this fiscal year. For the last fiscal year, 14.2 million new individual investors were added to the market.

Another factor is the good inflow of foreign capital. Investment through participatory notes rose to a 37-month high of 922.61 billion rupees in June. Participatory notes are issued by registered foreign portfolio investors to overseas investors who wish to be part of the Indian stock market without registering themselves directly. They must, however, go through a due diligence process.

Billionaire investor Rakesh Jhunjhunwala opines that the current bull phase will last for a very, very long time. He is counting on the nation’s potential for long-term growth and political stability to fuel further gains in the stock market. He feels India will remain lucrative for investors even after the US Federal Reserve begins withdrawing stimulus, though there might be some short-term disruptions.

However, the Reserve Bank of India has taken a much more cautious stand and warned about a possible stock market bubble. The central bank noted that the prices of risky assets in many countries have touched record high levels during 2020-21 on the back of unparalleled monetary and fiscal stimulus levels.

This could have “unintended consequences” in form of inflationary asset prices. “This order of asset price inflation in the context of the estimated 8% contraction in GDP in 2020-21 poses the risk of a bubble,” the central bank said.

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