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Sustaining sensex's scorching bull run



The Sensex has made a more surefooted ascent at 70,000, adding a relatively smaller 10,000 points in percentage terms in over three times the time it took to add the previous 10,000. This stretches overall market capitalisation less and keeps it slightly ahead of nominal GDP, signalling a multi-year bull run coinciding with one of its fastest paces of economic expansion. The longer-term trend for the Sensex is predicated on the assurance that India will double its current nominal GDP in dollar terms in under a decade. True, post-Covid inflation has helped things for companies that regained pricing power during the recovery. The next stages of the market rally are likely to be driven more by investment-led growth as inflation trends towards its policy target.

Structurally, the market has also changed, with wider retail participation offsetting volatility in international capital flows. The immediate triggers for the Sensex to touch 70,000 must include policy continuity, which the results of the state election declared last week are signalling. India’s remarkable recovery from the pandemic trough owes itself considerably to a mature policy response. Besides, the country finds itself in a more central position in a changing world order. It has unveiled a vision that places itself at the heart of sustainable and technology-driven change. Investors seem to be buying that vision, helped by steady class-leading economic growth.

The picture is not entirely clear, however. India may not be able to pivot rapidly enough away from domestic consumption to become an export manufacturing base. Unless Indian manufacturing moves out of the security of domestic consumption, the economy may not be able to sustain its current growth rates. It has primarily been jobless growth so far, and the formalisation of the economy is slow, given its size. Accomplishing an export turnaround in a weakening global economy that is turning increasingly protectionist will be a considerable feat. India must pull that rabbit out of the hat to have investors asking for more.

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