"We are in a peculiar situation where the benchmark market indices -NIFTY and Sensex have reached levels, perceived to be high while gold cannot be safe haven option for too long as the yellow metal has seen quite a run in the past eight months," said the Associated Chambers of Commerce and Industry in a report.
"Investment cannot go in the real estate and property markets which are in a state of a mess. So the cash would sit idle in banks, irrespective of higher or lower interest rates", the report added.
Assocham said there was no investment appetite from industry, "which is not even operating at full capacity".
Whatever investment is currently coming into Indian industry is from foreign direct investment (FDI) or for bidding in obligatory natural resources like telecom spectrum.
Noting that excessive liquidity is being generated in the absence of robust industrial growth or demand, the report said India has been one of the main recipients of large cash being printed by central banks of the developed countries without any takers there, even at the sub-zero interest rates.
Japan, for instance, is an example, where interest rates have turned negative earlier this year.
"So, when we look at the elevated levels of valuations in the stock market, we should see with a muted sense of excitement because a large part of it is driven by a global liquidity and absorbing it has its own issues, though in the short term, the trend has helped bring stability in the foreign exchange value of rupee," Assocham Secretary General D.S.Rawat said.
"Equities had their run, so is the case with the gold. With several top notch builders in a messy situation of not being able to deliver the in-hand projects, there is a tremendous lack of confidence of investors or actual users in the property market. So, that leaves cash idle", the report said.
According to the industry chamber, while increased rural demand would boost certain industrial segments, "it would not be to the extent of causing investment in fresh capacity".
Moreover, the commodity cycle remains muted, while export demand would too remain muted, it said.
"Thus, the biggest trigger has to be demand for money for fresh investment, which is still far. On the other hand, the asset classes - equities, gold - have reached saturation while real estate is in a nursing ward," it added.
