Booming stock market and ailing economy

It is very good that the public authorities are interested in economic growth but the approach needs to change

In India, the stock market prices are surging to new highs, while the economy is not doing very well. Why? Even though stocks ought to represent the present value of future corporate profits, it has been observed repeatedly that the current profits, and profits in the near future, tend to be overemphasised. Currently such profits are high. A part of this is simply cyclical. But there is also another important part. 

In 2019, the corporate tax rates were cut substantially. The effect of this hardly showed up in 2020 due to Covid-19, but the profits have gone up in 2021. Furthermore,