Why the deep disconnect?<\/strong><\/h2>\n\n\n\nA majority of market pundits\nwill concur that financial markets do not reflect the real economy. They rarely\nhave. This is because the markets essentially are forward-looking. It is more a\ngauge of how the investors expect the economy to perform in the medium to long\nterm.<\/p>\n\n\n\n
Investors, for instance, are\nbetting the US technology companies and pharmaceutical companies to perform\nwell during the pandemic. <\/p>\n\n\n\n![\"Tech](\"\/wp-content\/uploads\/2020\/10\/equity-markets-2-678x1024.jpg\")
<\/figure>\n\n\n\nSource: Wall Street Journal <\/p>\n\n\n\n
The tech stocks have had a\nrecord run during the pandemic. The price-to-earnings ratio, at one point, rose\nclose to levels last seen during the dot-com bubble which means that investors\nare willing to pay up to 75 times the current value of the stocks. The\nexpectations may or may not get the backing of earnings later on but the\nexpectations drove the stocks higher.<\/p>\n\n\n\n
Additional Read:<\/strong> How have Global Indices Fared\nDuring COVID19?<\/a><\/p>\n\n\n\nIs it \u2018smart money\u2019 coming in?<\/strong><\/h2>\n\n\n\nForeign fund inflow in Indian equities improved significantly\nsince the month of June this year. While the economy was nearly at a\nstand-still, institutional investors continue to bet on the economic recovery.\nIn essence, smart money chased investments when things were down so that\nstrategic investors could position themselves very well when the economy picks\nup. <\/p>\n\n\n\n
Similarly, the Indian equity indices had logged all-time highs\nlast fiscal in midst of a crippling slowdown because of the large inflow of\nforeign funds. FIIs have played a major role in the movement of Indian markets\never since significant inflow started to enter post liberalization of the\neconomy. <\/p>\n\n\n\n
Response from Governments and Central Banks<\/strong><\/h2>\n\n\n\nThe pull-back seen in the stock markets is largely because of the\nunprecedented response of the central banks and aid-packages by the government.\nThe size of the economic package in the US, and the EU including developing\ncountries has been even larger than the one during the 2008 financial crisis. Central\nbanks across the globe have gone on a rate-cutting spree, which boosted the\nliquidity levels in record time. Thanks to the liquidity support, the 2020 US\nbear market was the shortest ever. Therefore it may not be wrong to say that\nthe investors are expecting a V-shaped recovery considering the strong and\nquick response this time around. <\/p>\n\n\n\n
A major part of this recovery rally has been caused due to the\ninflux of liquidity in the economy. This liquidity is not backed by earning\npotential. It is possible that equities may reverse the trend if the earnings\ndon’t follow and match the liquidity infused. Besides positive news with\nregards to a vaccine has also boosted equities. It is a matter of \u201cwhen\u201d not\n\u201cif\u201d. The impact that the vaccine will\nhave in future can be judged by the recent sell-off following the news that the\ntrials of one prominent vaccine candidate were halted after some complications\ndeveloped in one of the participants. Markets bounced back when the trials\nresumed. <\/p>\n\n\n\n
Conclusion:<\/strong><\/h2>\n\n\n\nPinpointing the exact reason for the growing disconnect between the stocks markets and the economy is difficult but the record run by global markets during the ongoing pandemic is certainly backed by strong liquidity infusion by global central banks. During these uncertain times, you may wish to rely on professional wealth managers. Tata Capital offers an unmatched bouquet of well-researched wealth management products<\/a> for each asset class. The goal of experienced wealth managers at Tata Capital is to ensure that customers get the right solutions best suited for their investment goals. <\/p>\n","protected":false},"excerpt":{"rendered":"The investor community was left puzzled when the US stocks hit a record high earlier in August. <\/p>\n
<\/figure>\n\n\n\nSource: Wall Street Journal <\/p>\n\n\n\n
The tech stocks have had a\nrecord run during the pandemic. The price-to-earnings ratio, at one point, rose\nclose to levels last seen during the dot-com bubble which means that investors\nare willing to pay up to 75 times the current value of the stocks. The\nexpectations may or may not get the backing of earnings later on but the\nexpectations drove the stocks higher.<\/p>\n\n\n\n
Additional Read:<\/strong> How have Global Indices Fared\nDuring COVID19?<\/a><\/p>\n\n\n\n Foreign fund inflow in Indian equities improved significantly\nsince the month of June this year. While the economy was nearly at a\nstand-still, institutional investors continue to bet on the economic recovery.\nIn essence, smart money chased investments when things were down so that\nstrategic investors could position themselves very well when the economy picks\nup. <\/p>\n\n\n\n Similarly, the Indian equity indices had logged all-time highs\nlast fiscal in midst of a crippling slowdown because of the large inflow of\nforeign funds. FIIs have played a major role in the movement of Indian markets\never since significant inflow started to enter post liberalization of the\neconomy. <\/p>\n\n\n\n The pull-back seen in the stock markets is largely because of the\nunprecedented response of the central banks and aid-packages by the government.\nThe size of the economic package in the US, and the EU including developing\ncountries has been even larger than the one during the 2008 financial crisis. Central\nbanks across the globe have gone on a rate-cutting spree, which boosted the\nliquidity levels in record time. Thanks to the liquidity support, the 2020 US\nbear market was the shortest ever. Therefore it may not be wrong to say that\nthe investors are expecting a V-shaped recovery considering the strong and\nquick response this time around. <\/p>\n\n\n\n A major part of this recovery rally has been caused due to the\ninflux of liquidity in the economy. This liquidity is not backed by earning\npotential. It is possible that equities may reverse the trend if the earnings\ndon’t follow and match the liquidity infused. Besides positive news with\nregards to a vaccine has also boosted equities. It is a matter of \u201cwhen\u201d not\n\u201cif\u201d. The impact that the vaccine will\nhave in future can be judged by the recent sell-off following the news that the\ntrials of one prominent vaccine candidate were halted after some complications\ndeveloped in one of the participants. Markets bounced back when the trials\nresumed. <\/p>\n\n\n\n Pinpointing the exact reason for the growing disconnect between the stocks markets and the economy is difficult but the record run by global markets during the ongoing pandemic is certainly backed by strong liquidity infusion by global central banks. During these uncertain times, you may wish to rely on professional wealth managers. Tata Capital offers an unmatched bouquet of well-researched wealth management products<\/a> for each asset class. The goal of experienced wealth managers at Tata Capital is to ensure that customers get the right solutions best suited for their investment goals. <\/p>\n","protected":false},"excerpt":{"rendered":" The investor community was left puzzled when the US stocks hit a record high earlier in August. <\/p>\nIs it \u2018smart money\u2019 coming in?<\/strong><\/h2>\n\n\n\n
Response from Governments and Central Banks<\/strong><\/h2>\n\n\n\n
Conclusion:<\/strong><\/h2>\n\n\n\n