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Photo: Reuters
Photo: Reuters

Dizzying heights

On Thursday, the BSE Sensex blazed past the 50,000 mark, before ending just a shade lower and has gone up by a crisis-defying 90%-plus since its March low

In the 2017 annual report of Berkshire Hathaway Inc., chairman Warren Buffett wrote: “The light can at any time go from green to red without pausing at yellow." His caution may have been in a specific context, but it’s especially relevant now, with the current stock market exuberance looking distinctly irrational. On Thursday, the BSE Sensex blazed past the 50,000 mark, before ending just a shade lower. It has gone up by a crisis-defying 90%-plus since its March low.

Yet, even those tempted to go short on equities had better be careful. As Keynes had put it, markets can remain irrational longer than one can stay solvent. So long as central banks keep cheap money flowing globally, and enough of it goes into stocks, it doesn’t really matter whether share prices make sense from a perspective of future earnings. The Sensex ascent could easily go on. As asset inflation doesn’t worry policymakers much, it’s for investors to watch out for signs of a reversal ahead. Monetary policy normalization in the West, for example, could set off convulsions. But under covid-battered conditions, that’s discussed only in hushed tones. It would pay to listen closely.

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