By Ravi Dutta Mishra

Mumbai, Dec 19 (IANS): While former Chief Economic Advisor Arvind Subramanian has recently described the Indian economy as being in the midst of "The Great Slowdown", Dalal Street, however, continues to be on a record breaking spree.

Thursday's closing bell marked the third consecutive session wherein the benchmark indices -- Sensex and Nifty -- logged record highs.

However, only a select few large cap stocks are giving the leg-up to the benchmark indices. The broader market is still reeling under pressure with both Mid Cap and Small Cap indices showing negative returns in this calendar year to date, in sharp contrast to the 50-scrip Nifty index delivering double-digit returns.

The main reason for the indices touching news highs is the significant improvement in global investors sentiment after US and China signed the first phase of trade deal, partially, ending the 18 months long and expensive trade war.

"The market mood is more positive than what is reflected in the real economy. This is mainly because of improvement in earnings led by a reduction in the corporate tax rate and strong FPI (foreign portfolio investors) and SIP (sytematic investment plan) flows," Kotak Securities said in statement.

Kotak said the underperformance of the Small Cap index relative to the Nifty-50 has come closer to its three such previous instances seen in the last 15 years.

The brokerage also said that the for the mid and small caps to outperform the large caps "we need a broad recovery in the economy with improved credit offtake, better print of IIP and GDP growth".

"The stock market is largely driven by short term capital flows. Hence stock price movements are mostly a sideshow, not a barometer of the real economy," Professor R. Nagaraj of Indira Gandhi Institute of Development Research told IANS in this regard.

Brokerages say that this disconnect between equity markets and the economy could stay for some time as high-frequency indicators are not showing any signs of improvement whereas markets could remain at elevated levels on hopes of certain sops likely to come in the forthcoming Union Budget.

Buying in select heavyweights has taken Sensex to record levels. Large-cap stocks like Reliance Industries, the HDFC twins, ICICI Bank, Kotak Mahindra Bank, Bajaj Finance and Asian Paints have outperformed the BSE Sensex.

The buying has continued despite economic fundamentals telling a different story altogether. After retail inflation jumped to over 5 per cent for November, amid sustained weakness in the GDP growth rate, has naturally sparked concerns of "stagflation" among economists.