Sensex may hit 53,000 soon. Markets in bubble zone?
Published On: Friday, May 28, 2021 | By: Team KnowMyStock
Today the benchmark Nifty50 index achieved another milestone when it scaled a fresh record peak of 15,455.5. The feat comes just a day after the Reserve Bank of India issued caution over the meteoric rise in stock prices amid a ravaging Covid-19 pandemic. India's benchmark indices have more than doubled from the post-pandemic lows made in March 2020 while several individual companies have seen multi-fold jump in their stock prices. In May alone, nearly a dozen Nifty50 stocks have hit a lifetime high. These include State Bank of India, Wipro, Bajaj Finserv, Tata Steel, and JSW Steel. IT companies dominate the list of stocks that hit lifetime highs this year, followed by banks and financial services. "This order of asset price inflation in the context of the estimated 8 percent contraction in GDP in 2020-21 poses the risk of a bubble," the RBI said in its annual report yesterday.
At the moment, markets are standing at crossroads where global economies are clocking a rebound in economic activities while the Indian economy's outlook remains mildly ambiguous amid the second wave of the coronavirus pandemic. As inflation inches up in major economies like the US and Europe, investors are concerned whether the era of loose monetary policies is over. The RBI too opines that "calibrated unwinding" might be needed.
"Liquidity injected to support economic recovery can lead to unintended consequences in the form of inflationary asset prices and providing a reason that liquidity support cannot be expected to be unrestrained and indefinite and may require calibrated unwinding once the pandemic waves are flattened and real economy is firmly on recovery path," it said.
Nonetheless, bullish forecasts continue to pour in for the domestic indices as investors eye growth post recovery from the second wave.
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