Why has a eminent economist like Rakesh Mohan warned that stock markets don’t reflect the Indian economy?

Dr. Rakesh Mohan has, in fact, warned that Indians should not get carried away by the stellar performance of the stock market, which is touching new highs every day. He has underlined that the Indian economy was not doing really well, because in reality it was lagging China in growth. That, according to Rakesh Mohan, is more important than indices.

According to Rakesh Mohan, there was just too much hope built into Indian stock markets and liquidity was just completing the formalities. However, he also underlined that this problem of stock overvaluation was a global phenomenon and not limited to India. That is true in the sense that the ratio of global market cap to GDP is at the highest ever.