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Explained: why stock market is surging during an economic slowdown

Jul 22, 2020 15:17 IST

CRISIL has said that the current recession due to COVID-19 will be the first slowdown to be driven by losses in the industrial sectors as opposed to agrarian sectors, taking off nearly 10% permanently from the economy. In this situation, why is the Indian stock market going up while the rest of Indian economy is steadily shrinking? Saurabh Mukherjea, Founder, Marcellus Investment Managers, says that stock market exists to look forward - stock prices don't depend on what happened in the past. They are an assumption of 20 years of profit in the future. Typically, India always has economic boom only when USA is in a recession. This happens due to 2 reasons - American recession brings oil prices down by 50-80% by virute of being the world's largest consumer. The oil prices fall gives our GDP a boost of about 3%. Second, the cost of money falls globally because US 10 Year Bonds fall by 2-3%. Cheap oil and money drive the Indian economy and by extension, stock markets. Watch BOOM's Govindraj Ethiraj and Saurabh Mukherjea discuss reasons for a stock market rally in India.