The second wave of Covid-19 may have wrecked India, but not India’s capital market. The bulls have been on steroids, charging in from all directions.

Markets are touching new highs on a regular basis. Mutual Funds again saw record inflows, this time totalling Rs 9235 crore in May 2021. Foreign as well as domestic institutional investors continue to enter the fray, sustaining the positive trend. At $3 trillion, India’s market cap to GDP ratio of 98% is at a decadal high, well above the long-term average of 76%.

These are great numbers to celebrate when the economy’s core fundamentals are strong. Unfortunately, that was not the case yesterday.

Weeks of lockdowns and reduced economic activity have cost India dearly. RBI has cut down growth projection from 10.5% to 9.5% – not a bad figure when seen in isolation, but not great when seen against a low-base previous year.

Auto sales have dwindled. Fuel prices are burning a hole in the middle-class wallet. Low interest rates and inflation pegged at 5.1% are adding insult to the injury at a time when unemployment rates continue unabated in double digits, week after week.

Without jobs, there is no consumption. Without consumption, no growth.

If India’s GDP continues to remain flat, the apparent bull run will turn into a bubble that will eventually burst, eroding billions of dollars of investor wealth.

The market sentiment yesterday was positive as there were hopes of India overcoming the shackles of economic blues.

The bulls want to stay invested, even up their investments, to see that happen before they want to cash out. They are pinning their hopes on India’s revival. So is the nation.

Policymakers must focus on real growth through infrastructure development, healthcare spending, incentivising private sector job creation, and negotiating hard to become the world’s factory to boost the manufacturing sector’s output. India should peg its GDP to a value-target, not a Y-on-Y growth percent. The $5 trillion economy dream needs new wings.

Until then, retail investors with a low risk-threshold should watch the economy as closely as the stock markets. If macro indicators continue to look bleak, a little profit booking at current levels as was seen yesterday will not hurt. The downside of waiting too long, however, could be drastic.