Beware the Indian market bubble

Mumbai

THE Indian economy was presented with the lowest growth in three years with GDP growth of only 6.1 per cent in the latest quarter ended March 2017. The economy is likely to take a further hit as rising bad loans by Indian banks have led to stressed assets exceeding the provisions made by such banks by US$93 billion. This is happening at a time when stock prices are hitting record highs, overshooting the economic fundamentals.

These contrary trends present a puzzling scenario that is threatening to derail Prime Minister Narendra Modi's much hyped economic plans. A major reason for the slowdown is the reckless demonetisation undertaken by the government in November 2016 when 86 per cent of the value of currency consisting of higher value 500-rupee (S$11) and 1,000-rupee notes was no longer legal tender. What was particularly hit was the employment-intensive construction sector which shrank by 3.…