Stocks surge to all-time highs amid concerns of a bubble, pain in a large part of the economy

The Stock market is on a roll, with benchmark indices surging to record highs quite often. Late last month, BSE Sensex had breached yet another lifetime high by crossing the 79,000 mark. Surprisingly, the 30-share index took just two trading sessions to scale 1,000 points. NSE Nifty 50 too had breached the 24,000 level for the first time. And the 50-share index mounted 1,000 points in mere 23 sessions. In May, it had taken 88 sessions for Nifty 50 to clock a 1,000-point jump.  
The bulls are on a relentless rampage during the first half of this calendar year. Sensex and Nifty 50 have risen by 10.86 and 9.85 per cent respectively in H1 of 2024. Besides, the euphoria is not limited to Sensex and Nifty 50 alone. In fact, Nifty Midcap 100 and Nifty Smallcap 250 have been rallying as if there is no tomorrow by gaining 22.18 and 22.19 per cent respectively in the last six months.
An interesting combination of factors is driving the market rally sky high. The Fed pivot – a shift in the Federal Reserve’s monetary policy stance from hawkish to dovish since last December – has had a significant impact on stock markets worldwide. The US central bank has announced that it will begin cutting policy rates later this year. The European Central Bank slashed interest rate last month, and many more central banks are set to follow suit.
Foreign portfolio investors (FPIs) – who had reduced their exposure to emerging markets, including India, with rates rising in the Western markets – returned to the Indian market with a bang in June by purchasing stocks worth over Rs 26,565 crore last month. The June inflows alone helped FPIs turn into net buyers of Indian equities worth Rs 3,201 crore in H1 of 2024, even as the first five months had seen huge fund outflows from them. 
As in past many years, domestic institutional investors (DIIs) have been a strong support to the market this year too. It would not be wrong to term the recent market rally as the one boosted by DIIs. Domestic institutions have pumped in Rs 2.30 lakh crore into equities during H1 of CY24, with 80 per cent of the total DII investments or Rs 1.80 lakh crore poured in by mutual funds.
Moreover, a new breed of retail investors – the millennials with deep pockets and huge risk appetite – have been calling the shots since the COVID lockdowns. No wonder then that these young investors are a major force behind the big upsurge in number of dematerialised (demat) accounts. A record 3.20 crore demat accounts were opened in FY24, taking the total number of such accounts to more than 15.40 crore.
As the market gets overheated and keeps soaring to new highs, there are deep concerns over a likely bubble that may soon burst and bring stocks crashing down. Market experts do not see a bubble in large-cap, blue-chip stocks. However, they are worried about many small- and mid-cap stocks already in a bubble.
Meanwhile, what most investors ignore – unknowingly or knowingly – is that the stock market surge is only mirroring a small part of the economy. This small part – which still is substantial in size and scale, comprising the organised sector – is making all the noise, setting a bullish narrative and pushing up the bourses. Sadly, there is a larger part of the economy, made up of the unorganised sector, which is struggling to make ends meet amid raging inflation and surging joblessness. A robust unorganised sector can add greater force to the market rally and make it sustainable for a longer time.

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