Hypothesis: The Disconnect Between The Stock Market And The Economy
COVID crisis has badly hurt economy, but why the stock market is growing and growing — an Indian perspective.
For Current Hypothesis
Ho: Stockmarket is NOT reflecting current and near-future economic conditions.
Ha: Stockmarket is reflecting current and near-future economic conditions.
Based on the current data we failed to reject the null hypothesis.
Why?
Many experts say, based on excess liquidity stock markets are growing quickly. Also, many believe, giving cash in hand will create demand.
Really!
Demand will only come back when the Indian middle class is confident and stable in a job or business. Demand would not come back, by giving money to the bottom of the pyramid. (However, to survive government efforts are necessary)
People buying Ferrari are going to buy anyhow. And people taking 2 meals a day are going to take 2 meals a day. Indian middle class is the one who can bring demand back.
The only uncertainty is how confident the Indian middle class is! Surrounded by job losses, pay cuts, business closers, high rents, etc, etc..
Hence, we failed to reject the null hypothesis. But, patience! we shall reject the Null hypothesis in the near future.
Q: The economy is contracting, the stock market is in V shape recovery. Why?
Ans: FII investing in markets, assuming 2–3 bad quarters, and factored in impact. Why?
Ans: Markets are flooded by liquidity globally. Why?
Ans: Central banks globally used a similar strategy after the 2008 crisis and cheap credit worked. Why?
Ans: Liquidity gives access to businesses to borrow more at cost-effective rates. Why?
Ans: Cost-effective High borrowing leads to more investment in the business, more job creation. Why?
Ans: Demands go up because more people have a job, stability, and surplus money. Is it there?
Ans: _ _ _ _ _
