The Indian Rupee is at an all time low. Good for exporters, but only in the short run. India's Current Account Deficit (CAD) is at a precarious point. Does costly crude prices make matters tighter ? Or is the RBI counterbalancing with controls on gold imports and a tighter Liquidity Adjustment Facility (LAF). Well, nice for the time being, but does this shoestringing really help ? Or bigger forces take over eventually. But, in any case, RBI surely does not have much of a headroom.
Then, is the stock market really reflecting the economy ? Well, the answer is both yes and no. No, because the key indexes, both Sensex and Nifty is going up every other day, while all key economic indicators point southward. And yes because, the real stock market, (as opposed to the indexes) - the length and breadth of the 1000+ companies, are as beaten down as can be. Almost everyone has lost money in the stock market. FIIs have retreated. In fact, for the first time in so many months, there has been a steady outflow of FII funds from India. DIIs have not participated. Retail investors and HNIs are either stuck or are conspicuous by their absence.
But the question is, if all of the above is true, then how does the index reflect such a surge. Well the answer to this probably lies in a concentrated polarisation of stock ownership. Some 20 index stocks (shares which account for 70% of the index) is seeing cyclical, risk-off, protectionist buying. So you have a few FMCGs like ITC, HUL, some pharma stocks and some IT majors which are rising when everything else is falling apart. Disastrous to imagine what after the cliff !