India’s Stock Market Mania Defies Economic Reality

India’s Stock Market Mania Defies Economic Reality

Signs of speculation are rife in global markets right now. But India stands out: The roaring stock market there looks particularly disjointed from economic reality.

India’s benchmark stock index, the Sensex, is up 22% since the beginning of 2020, almost exactly in line with the S&P 500. But the economic backdrop is quite different.

To illustrate just how frenetic India’s market has become, compare it with other emerging markets dependent on oil imports. In U.S. dollar terms, the benchmark MSCI equity indexes for Indonesia, Turkey, the Philippines and Thailand are down by between 7% and 12% relative to their levels at the beginning of 2020.

India’s performance in fighting Covid-19 isn’t enough to justify such a wide gap: The International Monetary Fund estimates that a full recovery for India won’t come until some time in the first half of 2022. That’s faster than Thailand due to the latter’s dependence on international tourism, but slower than Indonesia, which should reach pre-pandemic GDP levels this year.

As in many places, more speculative forms of trading activity have surged: Turnover from proprietary investors reached its highest levels since 2009 in January, up more than 160% from a year earlier.

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