state Bank of India (SBI) economists have said that the market capitalization (market cap) of Indian companies grew the fastest among the world’s major economies last year. However, the country’s Gross Domestic Product (GDP) declined during this period. This could pose a risk to the country’s financial stability.
SBI economists said in the note that retail investors have shown great interest in the market. The number of retail investors increased by 1.42 crore in the financial year 2020-21. At the same time, in April and May, their number increased by 44 lakhs. Economists of the country’s largest bank said that the reason for the rise in the stock markets during this period has been that the rate of return on other financial products is low. Also, liquidity improved globally. Along with this, people are spending more time at home due to restrictions on movement, due to which they are doing more trading.
The 30-share Sensex of BSE was 28,000 in April, 2020, which is currently over the level of 52,000 points. The Sensex has touched the 53,000 mark on Tuesday.
SBI economists said, “At a time when there is no significant development in the real economy, the issue of financial stability may arise due to the rise in the stock markets. According to our Financial Stability Index, it has shown the least improvement in April, 2021.
It is worth mentioning here that in the past, the Reserve Bank has expressed concerns about the risk of financial stability due to strong rally in the stock markets. The note said that the BSE has gained 1.8 times last year, which is the highest among major economies. During this period, Russia’s benchmark increased 1.64 times, Brazil 1.60 times and China’s 1.59 times.
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