Explained: Behind the disconnect between stock market and economy

As the coronavirus shut down the economy in 2020, the stock market plunged. But even as the economy remained shut for months, the indices jumped back to smash all records. The divergent trend surprised many, with the issue reaching Parliament.
 
 A Bharatiya Janata Party Member of Parliament sought to know in the Rajya Sabha the reasons for the economy crashing even as the stock market touches all-time highs. Finance Minister Nirmala Sitharaman had replied saying the stock markets are likely reflecting the future growth prospects of the economy, given the support provided by the policy response of the government.

Motilal Oswal Financial Services, in a note, says growth in gross value added (GVA) by listed non-financial companies has outpaced GVA by the rest of the economy, which explains the divergence. Also, the share of these companies in the national GVA, investments, and gross domestic product has not been much.