The rally in domestic stocks despite an estimated 8 percent contraction in FY21 GDP poses the risk of a bubble, according to a RBI study.
RBI in a study “Is the Bubble in Stock Markets Rational?”, said the widening gap between stretched asset prices relative to prospects for recovery in real economic activity has emerged as a global policy concern while suggesting the need to consider a calibrated unwinding of stimulus once the pandemic waves are flattened and the real economy is firmly on a recovery path.
The BSE Sensex hit a record high of 52,154 on February 15, which represented a 100.70 percent surge over March 23, 2020 levels. The index is hovering at 51,000-odd levels in Thursday's trade.
“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," it said.
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