Economic Survey 2020: Sensex has been a big wealth creator for investors since 1991

The Economic Survey 2019-20 says wealth is created in an economy when right policy choices are pursued which triggers is growth in the country.

The “Wealth Creation” chapter in the survey cited Adam Smith’s philosophy of the invisible hand to drive home the point about the success of advanced economies

Despite the dalliance with socialism–for almost four decades--India embraced the market model, which represents our traditional legacy, says the survey.

Post-liberalisation, there has been an exponential rise in India’s GDP that coincides with wealth generated in the stock market. The Sensex has not only grown but at a fast clip after 1991, when India opened its economy.

Crossing the first incremental 5,000 points took over 13 years, from its inception in 1986. Subsequently, the time taken to achieve next incremental milestones has shrunk over the years.

The acceleration in the Sensex was not due to the base effect. In fact, higher acceleration stemmed from a higher cumulative annual growth rate (CAGR), said the survey.

Phase I (1999-2007):  It saw an acceleration in the growth of the Sensex, with each successive 5,000-point mark taking lesser time to achieve.

Phase II (2007-14): The seven years saw a slowdown in the index’s growth.

Phase III (2014-): It  began in 2014 and saw a revival in response to structural reforms ushered in by the government.

In this phase, the Sensex jumped from 30,000-mark to the 40,000 in just two years.

The survey highlighted that the ultimate measure of a country’s wealth is the GDP. As investors care for the country’s GDP, uncertainty about its magnitude can investments.

Therefore, the recent debate over India’s GDP growth rate following the revision in estimation methodology in 2011 assumes significance, especially given the recent slowdown, the survey said.

The Economic Survey projects GDP growth rate for FY21 at 6-6.5 percent, while FY20 GDP is seen at 5 percent.

Disclaimer: The above report was compiled from Economic Survey 2020. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.