In a recent post on X (formerly Twitter), ace investor Shankar Sharma highlighted the importance of fueling bull markets with either equity capital or debt.
Sharma noted that India’s bull market has been primarily driven by two factors: a significant increase in public debt-to-GDP ratio from 65% to about 90%, and a notable rise in household debt (credit to Nikhil Gupta for this analysis). He also mentioned a considerable decrease in corporate debt, which has been a focus area for the markets.
Explaining further, Sharma pointed out that household financial positions have been deteriorating even before the pandemic, and this trend has continued in recent years. He emphasized that the growth in household debt in recent times has been the fastest in several decades, coinciding with weak income growth.
Additionally, Sharma highlighted a shift where physical savings are substituting financial savings, leading to an unprecedented collapse in total household savings.
Responding to Sharma’s post, one user attributed the decline in household savings and the increase in household debt to post-COVID revenge spending and the impact of daily expiry in derivatives trading.
Another user mentioned that despite the high market cap to GDP ratio, liquidity from weekly derivatives trading is providing significant support.
The Indian market reached record highs in intra-day trading, with Nifty surpassing the 23,000 mark and Sensex climbing above 75,500.
In an earlier post, Sharma cautioned against overcapitalization driven by the greed of merchant bankers and operators, identifying it as the single biggest threat to the current bull market. He warned that stocks raised with excess capital could face significant declines in the next bear market.
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