Contrasting tales: Economy is down, but markets have defied fears

The GDP contracted an unprecedented 23.9 per cent in the April-June period of 2020-21 — the first two months saw the lockdown, which was partially eased in June. 

The government is hopeful of a V-shape recovery in the coming quarters, but the Reserve Bank of India (RBI) is not. Lead indicators lend credence to RBI's theory of gradual recovery. 

In contrast, equity markets, which crashed over 40 per cent even before the lockdown came into effect on March 24, have defied fears, staging a dramatic recovery fuelled by aggressive stimulus measures by global central banks and support from the Centre and the RBI. 

In the past six months, Nifty has gained 52 per cent in rupee terms and 58 per cent in dollar value — making India one of the best-performing markets globally. 

The rally has been supported by strong buying by overseas investors, pushing valuations to multi-year highs and indicating that stocks are penciling in sharp earnings recovery.