Stock market and real economy Vs crisis

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The Unemployment level in India is increasing day by day, now it is in double-digit. In the coming quarters, the country is expecting an economic contraction, and the killer coronavirus behind it all is refusing to show any size of abatement. But, yet the stock market shows no reflections of the real economy. On the 20th of January this year, the Sensex which is a market index of India’s 30 well-established companies touched an all-time high of 42273. At that time the COVID-19 virus was only spread around China and the coronavirus had not been declared a public health emergency by the World Health Organization.

India being first in COVID-19 cases till now the virus spread out very rapidly around the world. The Sensex dropped about 40 percent to low of 25638 as from its January peak till the day prime minister Narendra Modi announced a nationwide lockdown on March 24. However, the market had recovered by over 50 percent to over 38000 in over 4 months since the lockdown. In the economic or health prospects for the country, the stock market recovery to near pre-COVID levels comes with no improvements. But we even have not realized the complete extent of the impact of coronavirus pandemic on the real economy. Between mid-February and March, the US stock market which had initially dropped by about 4 percent has recovered by over 43 percent since then.

Since the Great Depression for the first time in February, the US officially entered a recession. But stock markets are not the reflection of the economic situation, but this time the phase of recovery has been astounding. Even in the 2008 crisis, the Indian stock market takes a long year to reach the pre-crisis level. Based on his work on how narratives shape economic outcomes Robert Shiller outlined the behavioral aspect of the trend recently. Shiller also argues that until mid- February the lack of familiarity of investors as the event had no historical president so that the initial market silence in the US.

From the stories emerging from China and Italy of hospitals having to choose patience and stores running out of essential the following dip was driven. Investors found themselves in the familiar territory of the previous economic crisis was when the government swept into action to provide aggressive stimulus.  But the state lead actions reinforced investor believes to return to the markets, this had staged a prompt and promising recovery.

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