'Stock price rise without economic growth a matter of grave concern'
30 Jan 2018 9:41 PM IST
New Delhi: Elevated stock prices are a matter of concern and could correct sharply if they are not backed by growth, requiring "heightened vigilance", Chief Economic Adviser Arvind Subramanian said on Tuesday.
The growth is expected to decelerate to 6.75 per cent in the current fiscal, from 7.1 per cent in 2016-17, he said.
Subramanian also said that there has been convergence in price-earnings ratio of the Indian and the US stock markets in the last couple of years although the two economies have followed different paths.
Sustaining these valuations will require future growth in the economy and earnings in line with current expectations, and require the portfolio re-allocation to be semi-permanent, he said.
Otherwise, the possibility of a correction in them cannot be ruled out, he added.
The BSE benchmark, Sensex, had zoomed 233 points to end at yet another record high on Monday after the Economic Survey said that India will re-establish itself as the world's fastest growing major economy with GDP expanding by 7-7.5 per cent in 2018-19.
In the afternoon trade on Tuesday, however, the Sensex was down nearly 200 points.
The Survey has also cautioned that against the emerging macroeconomic concerns, policy vigilance will be necessary in the coming year, especially if high international oil prices persist or elevated stock prices correct sharply, provoking a "sudden stall" in capital flows.
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