The full collections of the products and companies tax (GST) between March and July stood at Rs 2.73 lakh crore. That is 34.5% decrease than what the federal government earned throughout the identical interval in 2019.The stock market index Nifty 50 has rallied by 53% to 11,648 factors between March 23 and August 28. It had touched this 12 months’s low of seven,610 factors on March 23.So, what’s the purpose in evaluating the Nifty 50 with GST collections? The GST is mainly a tax on consumption. If the GST collections are down by greater than a 3rd, what that mainly means is that non-public consumption is down majorly.When consumption is down, firms’ earnings are sure to take a beating. Take the case of two-wheelers and automobiles. When individuals don’t purchase as a lot of them as they used to, their manufacturing takes a beating. When that occurs, it has an affect proper down the value chain. It means decrease manufacturing of metal, steering, glass, tyres, and so on. A decrease manufacturing of tyres means a decrease demand for rubber. Decrease manufacturing on the entire means decrease demand for energy. Industrial energy largely subsidises farm energy and residential energy (the place energy is stolen). If industrial consumption goes down, the losses of state electrical energy boards go up. When this occurs, their potential to maintain paying energy era firms goes down. When these firms don’t receives a commission, they’re in no place to repay loans they’ve taken from banks.Many individuals purchase two-wheelers and automobiles on loans from banks and non-banking finance firms. When the shopping for falls, the overall quantity of loans given by banks additionally comes down. When banks don’t get sufficient loans, they should reduce rate of interest on their deposits.When this occurs, people who find themselves saving in direction of a purpose, want to avoid wasting extra. This implies they should reduce down on their consumption. Additional, people who find themselves largely depending on curiosity from bank deposits will see their incomes fall. This implies, they should reduce down on their consumption as properly. So works the vicious cycle.This cycle will even result in a fall in firms’ earnings. A Enterprise Customary outcomes tracker for 1,946 firms reveals that the gross sales of those firms for April to June 2020 have been down 23.1% in comparison with what it was in the identical interval in 2019. The online revenue for these firms was down 60.8%.The stock market doesn’t watch for issues to occur. It discounted for this chance and the Nifty fell by 32.1% between end-February and March 23. The market was adjusting for an period of falling firm earnings. Nevertheless it didn’t keep at these low ranges and has rallied by greater than 50% since then.The difficulty now’s that the valuations are manner off the chart. The price-to-earnings ratio of the Nifty 50 index, as of August 28, stood at 32.92. This implies, traders are able to pay near Rs 33 for each rupee of incomes for stocks that make up the Nifty 50 index. Such a degree has by no means been seen earlier than. Not in the course of the dotcom bubble period, not even throughout early 2008 when the stock market rallied to its then highest degree.Why has the stock market jumped a lot? Does this imply that firms’ earnings will soar excessive within the close to future? By no means. The Covid-induced recession is just not going to go anytime shortly. Additionally, the pandemic is now regularly making its manner into rural India.So, why is the stock market rallying? The Western central banks, led by the US Federal Reserve, have printed some huge cash post-February to drive down rates of interest and get individuals and companies to borrow and spend. The Federal Reserve has printed greater than $2.Eight trillion between February 26 and August 5. A few of this cash has made it into India.Throughout this monetary 12 months, international institutional traders have internet invested a complete of Rs 83,682 crore into Indian stocks, after slacking off on India over the previous few years. The stock market rally is clearly an affect of the straightforward cash insurance policies being run in a lot of the West.Additional, the participation of retail traders within the stock market has elevated this 12 months. Between December 2019 and June 2020, the variety of demat accounts rose by 3.9 million to 43.2 million accounts, a 10% rise. Actually, simply between end-March, after a complete lockdown was launched to deal with Covid-19, and June, 2.Four million new demat accounts have been opened.The most recent month-to-month bulletin of Securities and Trade Board of India, the stock market regulator, factors out: “We have seen a huge surge in participation of retail investors in the equity market in the last few months. The fact that there is also a surge in opening up of demat accounts suggests that many of these retail investors are perhaps first-time investors in the stock market.” With after-tax return on bank fastened deposits all the way down to 4-5%, when inflation is near 7%, these traders are coming to the stock market looking for greater returns.The query is, with the stock market at all-time excessive valuations, will their good instances final? Or as soon as the mud settles, will one other era of traders come to see investing within the stock market as playing? On that, your guess is nearly as good as mine.