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Friday, 13 October 2017

The Nudging Rise of Indian Stock Markets

Stock Markets are not nervous. That is what every economist might be thinking, though they might not be able to interpret the right reasons for this passionate buying spree. Noble laureate, Richard Thaler too admitted not understanding the rising tide of stock markets.  Is it just liquidity doing the merry go round for sovereign wealth funds & Ultra High Net Worth Institutions & Individuals or a subtle application of nudge theory at least here in India?

Economies are definitely recovering, but are the bouncing stock markets in line with the recovery rate. US markets are on a high since President Trump assumed office and are relentlessly moving northwards without any tax reforms or capital expenditure plans being implemented. China too in the recovery mode has its own shadow economy to tackle and high corporate debt to GDP ratio of about 165% but  the stock markets are fine. Japanese conundrum of low growth, higher stock markets and stronger currency still stays. Though Europe seems to be in a better position, Catalonian referendum has opened the Pandora’s Box which was nailed and shut just 16 months ago.

Indian stock Markets too follow their global peers, though the inherent sentiment seems to be different. FIIs would be having a ball at Dalal Street had not been for our Domestic Institutions coming to rescue every time there is a sell off. But where were these domestic homegrown warriors all these years. Just cooling off their heels while FIIs partied hard and our middle class was busy dumping their hard earned money in every kind of government savings scheme from PPF to NSC to KVP and of course the Post Office deposits. And then came the NUDGE, of course the government had to do it as Banks were unable to lower lending rates while deposits rates remained elevated with higher small savings rate. Reduced savings rate closer to the market, disrupted years of disciplined savings framework of our ever growing Indian Middle Class which was blessing for our stock markets and boon for the Mutual Fund industry. So this was nothing but “A subtle policy shift that encourages people to make decisions that are in their broad self-interest and well beingas per the Nudge theory by Mr Richard Thaler. So while the rest of the world is hailing it, we are already done with its implementation. Stock markets may be irrational, India Middle Class is not. 

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