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Mumbai: The surge in equity markets is not linked to economic recovery and may be a sign of irrational exuberance, economists at SBI said on Monday, pitching for a second round of fiscal support to help the impacted sectors. They also warned that banks will start reporting higher non-performing assets (NPAs) after September, once the six-month moratorium on loan repayment ends.
The markets shed over a fifth of their value in the early days of the COVID-19 pandemic and have recouped some of the losses in the last few weeks. Interestingly, the gains happened even as the chorus of a contraction in GDP started among the analysts, wherein some expect a negative growth of up to 5 per cent in 2020-21.
There is a weak linkage between buoyant markets and economic recovery and the phenomenon largely reflects “irrational exuberance”, the economists wrote in a note, attributing the same to easy liquidity made available by RBI.
“Beautiful markets do not signify a beautiful economy,” they said.
They also seemed to suggest that India cannot rely a lot on agriculture to boost the overall GDP growth, pointing out that even if the farm sector’s historically best performance of 15.6 per cent growth in 1951-52 …
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