Stock markets likely reflecting the future growth prospects: FM

New Delhi: Finance minister Nirmala Sitharaman said India’s stock markets were rising in anticipation of a revival in the economy due to the government’s stimulus measures. She also pointed to the decline in market volatility since March 2020.

“Stock markets are, therefore, likely reflecting the future growth prospects of the Indian economy given the support provided by the policy response of the government,” she said in a written reply to a question in the Rajya Sabha. “The movement in stock market indices is driven primarily by expectations of future economic growth.”

The government and regulators are watching the market, the finance minister said.

“Government, RBI and Sebi regularly monitor the behaviour of financial markets and take necessary measures to ensure orderly functioning of the stock markets and maintain macro-financial stability,” she said in reply to a question about the stock market surging amid an economic slump.

India’s GDP shrank 7.3% in FY21.

“This contraction reflects the unparalleled effect of the Covid-19 pandemic and the containment measures that were taken to control the pandemic,” said the finance minister. Regulatory measures by central banks across the globe to combat the impact of the pandemic have contributed to abundant liquidity in the financial system, she said.

“RBI in its recent Financial Stability Reports has recognised the disconnect between financial markets and real sector activity as a potential risk to financial stability,” she said. “However, economic research on stock markets clearly highlights that a key indicator of stock market indices being overvalued is high volatility in the stock markets. In this context, it is noted that stock market volatility as represented by India-VIX index has reduced considerably since March 2020."