Economic
Highlights
New Delhi, 16 July 2018
Weird Sensex Rise
WISE PRICING POLICY
VITAL
By Shivaji Sarkar
The sudden record movement of Sensex to
36,548 points once again proves that the stock market need not follow other
economic indicators. Yes, it is rising even as consumer inflation hits a five-month
high of 5 per cent in June and the industrial output growth slowed to a
seven-month low of 3.2 per cent.
There is one big difference. The Central
Statistical Organisation (CSO) figures are of May and the Sensex and Nifty
index at 11,023 are of July 12. Has the economy started doing really that well?
This is a possibility though it is not necessary that the stock market has to
synchronise with other growth indicators as past experiences tells us.
Let’s look at the Sensex first. It is a
narrow band of 30 stocks. The movement necessarily does not mean it is
reflecting the broad movement across the market. A handful of stocks have given
the cosmetic look. It is restricted to good performance of Tata Consultancy
Services (TCS), Reliance Industries and some other companies, which of late had
improved their balance sheet.
The Reliance hit $100 billion mid-cap and its
shares are up 17.5 per cent. The TCS’ performance also improved, but this is
attributed also to the falling rupee, which boosted its earning. The BSE
mid-cap index shows a sharp contrast. It has dropped 12.74 per cent and the
small-cap index has declined to a steeper 14.62 per cent. This speaks volumes
and the trend is apparently in sync with other indicators.
The trade war and possible reopening of talks
between China and the US are also said to have bettered market prospects. As
trade war and oil prices have created a choppy situation across major markets,
the players are moving to areas where a thin hope of gains is expected. The Indian
market has once again seen the return of the foreign institutional investors (FII),
which had fled to the US and western markets, between January and March, as
interest rates firmed up.
Not much should be read into the latest stock
movements though these are sustained for the past four sessions after a not so
encouraging patch. The Nifty had touched 11,027 on January 31 but took a long time
to come close to this, suggesting players are cautious and the gains are survival
techniques.
The global situation remains tricky and the market
would be making many corrections during the next few weeks. But this does not
mean it has to rise. One needs to remember that the market is coming out of
cheap money -- low interest rates. Many
companies that depended on cheap money may see a real squeeze.
The stock market has been supported by
domestic institutional investors. They have pumped in Rs 66,000 crore, but mutual
fund inflows have slowed down. The performance of some listed companies and
select banks, during the June quarter, may decide the future real investment
growth.
Sustaining such performance is not easy as
many sectors are not doing that well. For example, sugar industry production
has increased to 320 lakh tonnes and another 39 lakh tonnes from the previous
season has added to its problems. The international demand for sugar has slumped.
Except for China there is no demand. Many competitors, including Brazil and India,
have rushed to China to sell their produce, which is causing a slump in prices.
Sugar producers too are seeing a fall in
domestic demand. Even aerated water suppliers are cutting consumption as it is stated
that health conscious consumers are avoiding sugary drinks. Further, unsold
stocks have mounted sugar manufacturers’ arrears to be paid to farmers to about
Rs 22,000 crore. The government announced Rs 8,000-crore support, but the huge
backlog is more than an economic problem.
Besides, the ease of doing business is stated
to have increased. But overall stiff regulations and alleged rent seeking in
many areas are proving to be a hindrance. States such as Uttar Pradesh are
seeing many “unlicensed” schools being closed down. Not many are eager to
invest in education and such high-handed approach further dampens the spirit.
It is just not the State bodies, even the
municipalities, act in a queer fashion. Some people, who try to sell fast food,
come across bands of local body functionaries demanding their share or the
licence, which is not easy to procure.
The nation has to seriously rethink about what
ease of doing business actually means. Does a fast food-seller actually
require a licence? A pragmatic approach, including on ecological issues, across
all businesses, is needed for the country to thrive. It may be a good subject
of study for NITI Ayog. Rising prices as the consumer index indicates may
further impact demand. Rainfall deficit and high oil prices in addition may
stiffen conditions.
As inflation is crossing the RBI’s tolerance
limit, it has to rightfully firm up interest rates. Besides, it has to see that
the banks increase deposit rates as well and not pass on losses caused by their
follies to depositors. This may shake the confidence of the people in the
system. A higher interest rate would also be a deterrent for the corporate.
They had taken unnecessary huge loans since 2010 and thus increased rates would
possibly make them more responsible.
Above all, the State has to be firm on rising
prices. These should not be treated as ‘normal’ phenomenon. The falling rupee
increases impact of oil prices and further weakens the currency. The minimum
support price (MSP) hike for farm products is double-edged. It may marginally
help the farmers, but could hit the consumers more as food grain and products
become expensive, thus hitting demand. Additionally, industrial products face
difficulty in selling and consequently their growth gets hit.
A prudent pricing policy is needed to boost
the slowing manufacturing sector. In terms of industries, 10 out of 23 groups
in the manufacturing sector showed negative growth, indicating the broad-based
nature of slowdown. The best performing are the mining and electricity sectors.
Indeed, the Indian economy has many
challenges to face. Some cues may be found from the UK and EU visit of US
President Donald Trump. Cowering under pressure, the NATO allies have increased
their spending. As Trump goes on to talk with many of them, new signals could
be found. He may initiate a new series of discussions with India on Iran and
Afghanistan. The international scenario is under cloud but the US’ audacity has
its answers in Trump dialogues. May be the future for India would be better, but
it has to check the prices to ensure growth.---INFA
(Copyright,
India News & Feature Alliance)
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