Excess liquidity in stock market may unwind by 2024: K Subramanian

India could be the fastest-growing major economy in the world in the next decade that is bringing a lot of foreign investors to Indian markets but it may change by 2024, says India’s Chief Economic Advisor Krishnamurthy Subramanian while speaking to media after the presentation of Economic Survey, writes ETV Bharat's Deputy News Editor Krishnanand Tripathi.

New Delhi: Indian economy is fundamentally strong with solid growth potential that attracts foreign investors to Indian stock markets as they are looking for returns for the liquidity they have but it may slowly begin to unwind in the next two years, says India’s Chief Economic Advisor Krishnamurthy Subramanian.

In an exclusive interaction with a select group of journalists after the presentation of Economic Survey, K Subramanian said India could be the fastest-growing major economy in the world in the next decade that is bringing a lot of foreign investors to Indian markets but it may change by 2024.

In response to a question about whether the current valuation of stock markets pose a risk to investors, particularly to retail investors, the chief economic advisor explained the phenomenon that led to the BSE and NSE touching an all time high in recent times despite the outbreak of Covid-19 global pandemic.

On January 21, India’s benchmark index, the BSE Sensex crossed an all time high of 50,000 when it reached 50,181 during the intra-day trading. Similarly, the more broad-based index, the NSE NIFTY, neared an all time of 15,000 and is expected to cross it by mid-February.

The Chief Economic Advisor says, stock markets value future growth and foreign investors are investing money as they are not getting similar returns in other countries.

“Stock markets value future growth. It covers the current assets of a company and future opportunities. If you look at the global economy, you will find that a country as large as India is growing at a rate of 6-7% over the next decade due to the resilience shown by us during the pandemic,” said the chief economic advisor.

“The kind of opportunities the investors can have in India are very different than they will get anywhere else,” added K Subramanian.

Subramanian says India could be the fastest-growing large economy in the world, especially, because of the reform measures taken by the government, which is giving confidence to foreign investors to pour money into the country’s stock markets.

“I can say with some certainty as we have navigated the pandemic with a lot of maturity and the reform measures that we have taken are giving a lot of confidence to the investors,” he said.

Subramanian explains that a lot of investment was coming to the country because advanced economies have expanded their fiscal space leading to the generation of a lot of liquidity in the system that is looking for returns which in turn is leading to increase in the valuation of Indian stocks.

He, however, cautions that this phenomenon may not last very long.

“This part is likely to slowly unwind itself around 2024 or so, that is the expectation,” he said.

“When that unwinding happens then the liquidity situation can change. This is something that must be kept in mind,” explained the chief economic advisor.

Subramanian says while there was no question about the fundamentals of Indian economy and future expectations that are bringing in the money for returns but the investors should be mindful of the fact that this liquidity situation may change in future which will affect the valuation of stocks.