The risk in the market has increased due to the stock price reaching the highest level and also seeing an increase in the index. RBI mentioned this while presenting the annual report for the financial year 2021-22 on Thursday.
RBI’s comment on increasing risk in the stock market
In view of the widening gap between the real economy and the prices of financial assets, the RBI is fearing the end of the rally in the stock market. This was mentioned by the RBI during its annual report on Thursday. The Reserve Bank warned, “The boom in the stock market is like a risk.” Despite the projected 8% contraction in GDP in 2020-21, this boom in the market indicates a risk.
The RBI also said that the gap between expanded property prices has increased considerably against the prospects of improving real economic activity, which is emerging as a global policy concern. Stock markets are mainly governed by money supply and foreign portfolio investor (FPI) investment. Economic possibilities are seen in the stock market as well, but its effect is much less compared to the money supply and foreign fund flow.
According to RBI, share prices in the country have reached a record high. The index crossed the 50,000 mark on January 21, 2021 and reached a high of 52,154 on February 15. This level is 100.7 percent higher than the decline during the nationwide lockdown in the country (March 23, 2020). At the same time, the Sensex has increased by about 68 percent in 2020-21. In such a situation, this situation of inflation of property value is creating a situation of risk, given the estimate of 8 percent fall in GDP in the year 2020-21.
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