The real economy’s recent record, however, has been anything but spectacular. Industrial output crawled at 0.6% in August; capital goods output growth — a proxy for measuring investment activity — has slumped back into the contraction zone; consumer durables output continues to remain rooted in negative territory despite higher car production, possibly due to a sharper slowdown in the production of goods such as televisions and refrigerators. Besides, according to the Purchasing Managers’ Index of HSBC, a metric to measure industrial activity capturing output to sales, factory activity in India probably contracted for the second consecutive month in September. The food price index rose 18.40% in September, higher than 18.18% in the previous month. There are, however, some scattered signs of recovery. India’s exports recorded its third successive month of expansion growing by 11.15% in September while imports fell 18.10% during the month.
So what are the stock markets celebrating? In normal circumstances, it is safe to assume that a soaring equity market would imply that the economy is doing well, However, as the macro numbers show, domestic demand remains sluggish and the bottoming out process can be a long one. In these choppy conditions, retail investors should tread, or rather trade, with caution.