All this twisting and turning, do they know what they are doing?

"Why isn't India's stock market falling more?" asked Andy Mukherjee. When, "New daily covid infections have remained above 300,000 for two weeks now, the worst caseload the world has seen." "At 32 times earnings, almost double the valuations in China, the Indian market is super-expensive." His opinion is shared by Mohit Satyanand who wrote that, "Indian shares are extremely expensive. Though the Nifty has fallen 4% from its March high of 15,432, it gained 72% over the year ending 31 March." "At the end of 2019, the percentage of adult Indians in the labour force was about the lowest in the world at 42%." "Only 37.6% of adult Indians were employed in the month of March 21." Investors think that companies will protect profits by firing workers, the RBI will increase liquidity and offer protection on loan repayments and people will be pushed into buying shares because of very low interest rates on their bank savings. But this year is different, notes Mukherjee, because, "the virus has infiltrated villages", and company profits will be hit "if raw material prices stay at their highest levels in a decade". "India's economic recovery this year will probably decouple from the US, where Treasury Secretary Janet Yellen is hinting at 'somewhat' higher interest rates to prevent overheating." "If global liquidity and inflow of funds by foreign portfolio investors (FPIs) led to the domestic market rally that began in October 2020, the current strength in the market is being provided by domestic institutional investors (DIIs) -- mutual funds and insurance companies among others," wrote Sandeep Singh. "On Wednesday, the Reserve Bank of India's (RBI) decision to step up purchase of government securities under the government securities acquisition programme (G-SAP) led to the yield on 10-year bond falling below 6%," wrote Matthew and Verma. "Without saying so, the RBI has embarked on quantitative easing (QE)," wrote Ajit Ranade. G-SAP is just a "fancy name" for QE. "For now it seems that the only real beneficiary of GSAP is the central government, which is the biggest borrower in the economy." The danger is, "For one, a central bank cannot control both bond yields and the external value of its currency." "Secondly, this is like entering a 'chakravyuh' from which an exit path is unknown." "The government will borrow Rs 12.05 lakh crore (trillion) from the market in 2021-22", while according to the Revised Estimate gross borrowing for 2020-21 was Rs 12.8 trillion, Economic Times (ET). The government borrows through the RBI by selling bonds. The RBI has already been buying long term bonds and selling short term ones through open market operations (OMO) in an effort to bring down long term borrowing costs for the government, called 'Operation Twist'. All this twisting and turning seems pretty fruitless because the moment the RBI steps in with an enormous bond auction traders will demand higher yields. "In the last month alone, RBI cancelled more than Rs 30,000 crore (Rs 300 billion) debt auctions." Robert Mundell postulated that "policymakers can choose any two, but not all three, macroeconomic objectives -- foreign capital mobility, fixed exchange rate and inflation management," wrote Amol Agarwal. "RBI managed this trinity by increasing liquidity via multiple programmes, keeping bond yields low. This was at the cost of ignoring the inflation target, which remained above the upper range of 6% from April 2020 to November 2020." From April 2020 to February 2021 India "received net Foreign Direct Investments (FDI) of $41 billion, and equity investments Foreign Portfolio Investments (FPI) of $36 billion". To stop the rupee from becoming too strong against the dollar, despite a large difference in inflation rates between the US and India, the RBI purchased "an estimated $74 billion in the spot markets and another $79 billion in forward markets". Wonder if they know what they are doing. But, at least we have a pile of dollars.