Markets reflecting bullishness over economy’s growth prospects, says Nirmala Sitharaman

Our Bureau New Delhi | Updated on August 03, 2021

Fall in India VIX shows benchmark indices aren’t overvalued, says FM

Finance Minister Nirmala Sitharaman said stock markets, which are showing buoyancy, are reflecting the future growth prospects of the Indian economy. She also indicated that the fall in the India VIX index — a key measure of volatility in markets — since March 2020 may be a pointer that Indian benchmark indices are not overvalued.

“Stock market volatility as represented by India VIX index has reduced considerably 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,” Sitharaman said in a written response to a Lok Sabha starred question on Tuesday.

Markets surge

This written reply was made public on a day when the Sensex touched a fresh all-time high of 53,887.98, while the Nifty 50 surged to a fresh peak of 16,146.90 in intraday trade.

The Sensex gained 873 points to close at 53,823 while the Nifty 50 closed 245.6 points higher at 16,130.75.

There is a general belief there is a disconnect between the real economy and the stock market. Sitharaman mentioned in her response that RBI, in its recent Financial Stability Report, has recognised a disconnect between financial markets and real sector activity as a potential risk to financial stability.

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,” she said.

Although Sitharaman highlighted that the economy contracted by 7.3 per cent during FY21, she pointed out that expectation of future growth is also very high.

Also, regulatory measures taken by central banks across the globe to combat the impact of pandemic have contributed to abundant liquidity in the financial system.

“The government, the RBI and the SEBI regularly monitor the behavior of financial markets and take necessary measures to ensure orderly functioning of the stock markets and maintain macro-financial stability,” she assured the house.

Taxes on petrol and diesel

In a written response to another starred question, she said the government collected around ₹16.7 lakh crore through excise duty, including cesses, on petroleum products between 2014-15 and 2020-21. She informed the excise duty on petrol has gone up to ₹32.90 from ₹9.2 per litre between 2013-14 and 2021-22. Similarly, on diesel, central excise duty moved up to ₹31.80 from ₹3.46 per litre during the same period.

“The excise duty rates on petrol and diesel have been calibrated to generate resources for infrastructure and other developmental items of expenditure keeping in view the prevalent fiscal situation,” she said.

Published on August 03, 2021

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