As the Sensex and Nifty scaled new highs on Thursday, Rashesh Shah, Chairman and Managing Director, Edelweiss Financial Services, said the markets are reflecting the optimism around the economy and liquidity conditions.

“The stock market is usually a barometer of the underlying confidence of the economy and of the liquidity conditions. There is optimism about the next four-five years of the economy in terms of growth and corporate earnings. When I talk to corporates, there is a lot of bullishness, animal spirits are reviving,” he told BusinessLine. There is also a lot of liquidity available, he further said.

Expressing hope that the health and economic impact of subsequent waves of the pandemic will be lower, Shah noted that India is coming out of a long-term slump and it is expected that the economy would catch up on growth in the next four to five years.

Earnings to grow 13%

There are also expectations of a revival in corporate earnings. “Corporate earnings, which grew at about three to four per cent in India on average over the last two years are expected to grow at about 12 per cent to 13 per cent annually for the next five years,” he said.

The economy, which went through waves of slowdown since 2012, is now on a recovery path, he stressed, adding that all the ingredients for economic growth are present.

“The underlying fundamentals are there, demand is very good, global trade and exports have come back, interest rates are low, there is excess liquidity, balance sheets of banks are cleaned up and corporates are deleveraged,” he said.

While he expects inflation to continue to hover around 4 per cent to 4.5 per cent, Shah said that if RBI continues with an accommodative stance, it would be good for the economy. Credit demand, which is currently led by retail borrowers, is also likely to make a comeback with demand form SMEs and corporates expected to pick up from March 2022.

Shah also cautioned investors to always be very careful in investing because markets can correct anytime. “Even in the bull market, markets come down very sharply,” he noted.

To boost consumption

He called for more direct policy support to the informal segment of the society to help kick start consumption.

“If we want to kick start consumption, especially rural consumption, then we can do two things. One is increasing the food prices, which the government has been doing. The other is through the fiscal policy,” he said, adding that the government needs to put money in the hands of the economically weaker sections. He expressed hope this would be included in the next Budget.

“Monetary policy helps the formal sector while any fiscal policy goes straight to the informal side,” he said.

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