The rise in stock market indices have to be monitored closely and investors need to exercise caution, according to Arvind Subramanian, Chief Economic Adviser.
The statement comes in the backdrop of the Indian equity markets touching new peaks on an almost daily basis.
“We have seen around the world that when asset prices go up very much, they always tend to come back so we have to be watchful,” Dr. Subramanian told the media after presenting the Economic Survey for 2017-18.
Two dilemmas
“When we analyse asset prices like this, there are two dilemmas,” he said.
“You can either make the mistake of saying... oh! this time it is different and stock market prices are justified. Or you can say... interest rates are rising... but people have been saying this internationally so often and were proven wrong, so you have [to] stay clear of both these traps. The higher prices go, our vigilance should increase correspondingly,” he added. Interestingly, even as the CEA advised caution, there was no abatement in the rally that had pushed the benchmark indices to hitherto unchartered territory.
On Monday, the BSE Sensex gained 232.81 points to close at a new high of 36,283.25. It had gained more than 2,000 points in the last one month. The broader Nifty of the National Stock Exchange (NSE) closed at a record 11,130.40, gaining 60.75 points or 0.55%.
The gains have come on the back of strong foreign fund inflows as well with overseas investors having bought shares worth ₹13,105 crore in the current month, till date. Foreign investors were net sellers at ₹5,883 crore in December.
However, the gains are being primarily led by front line stocks with most mid-cap and small-cap counters witnessing selling pressure. The market breadth on Monday was weak with almost 1,900 stocks losing ground as against only 955 gainers.
The Sensex saw 17 gainers and 13 declines with stocks like Maruti Suzuki India, HDFC, TCS, Hero Motocorp, Tata Steel and HDFC Bank leading the gainers pack.
