Economists have been berating the equity market for defying the sombre mood of the economy and hitting a new high when the Gross Domestic Product is plunging and the government fiscal projections going for a toss.

Arvind Subramanian, the first Chief Economic Advisor to the Narendra Modi government, is also puzzled that the stock markets are buoyant while the economy is sinking.

Flagging the issue at an event to inaugurate the ‘NSE Centre for Behavioural Science in Finance, Economics and Marketing’ at the Indian Institute of Management Ahmedabad, Subramanian said the first behavioural economics project of this Centre would be “to explain to me why the stock market is going up, up and up as the economy is going down, down and down.”

“If you could crack this puzzle for me, I would fly down here all the way from the US to understand it ... There are lots of other things I do not understand, (such as) financial markets in India,” said Subramanian, an alumnus of IIM-A.

The benchmark Sensex had gained a whopping 5,427 points so far this year to touch 41,682 from 36,255 logged on January 1 before making a 52-week high of 41,810 on Thursday.

Similarly, the broader NSE Nifty gained 1,362 points from 10,910 points on January 1 to 12,272 points on Friday. It made a 52-week high of 12,293 early this month.

What many critics of markets fail to understand is that about 95 per cent of the Nifty rally this year was made of six stocks -- HDFC Bank, Reliance Industries, ICICI Bank, Tata Consultancy Services, Infosys Technologies and Kotak Bank. These stocks are theatrically abbreviated as ‘Hritik’.

Analysts are expecting the coming year to be driven by ‘Salman’ – State Bank of India, Axis Bank, Larsen and Toubro, Maruti Suzuki, Adani Ports and NTPC. Will Salman deliver more punch than Hritik? Can behavioural science crack the puzzle? Only time will tell.

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