Sensex Rise and Fall: Studying deep Market giants


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 five-month high of 5 percent in June and industrial output growth slowed to a seven-month low of 3.2 percent.

There is one difference. The Central Statistical Organisation (CSO) figures are of May and sensex and Nifty index at 11,023 are of July 12. Has the economy started doing really that well? There is a possibility though it is not necessary that stock market has to synchronise with other growth indicators as past experiences tell.

The sensex first. It is a narrow band of 30 stocks. The movement necessarily does not mean that 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 percent. The TCS performance also improved but it is attributed also to the falling rupee. It boosted its earning.

The BSE mid-cap index shows a sharp contrast. It has dropped 12.74 percent and the small-cap index has declined a steeper 14.62 percent. That speaks volumes and the trend is apparently in sync with other indicators.

The trade war and possible reopening of talks between China and US are also said to have bettered the market prospects. As trade war and oil prices have created choppy situation across the major markets, the players are moving to areas where a thin hope of gains is expected. Indian market has seen once again the return of the foreign institutional investors (FII), who 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 it sustained for the last 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 that suggesting that the players are cautious and of and gains are survival techniques.

The global situation remains tricky and market would be making many corrections during the next few weeks. It 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 June quarter may decide the future real investment growth.

Sustaining such performance is not easy. Many sectors are not doing that well. The sugar industry production has increased to 320 lakh tons. Another 39 lakh tons from the previous season has added to its problems.

International demand for sugar has come down. Except for China there is no demand. Many competitors, including Brazil and India, have rushed to China to sell their product. It is causing a slump in price.

The sugar producers are also finding fall in domestic demand. Even aerated water suppliers are cutting consumption as it is stated that health conscious consumers are avoiding sugary drinks.

The 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 supports but the huge backlog is more than an economic problem.

The ease of business is stated to have increased. But overall stiff regulations and alleged rent seeking in many areas are hindrance. States like UP are seeing many “unlicensed” schools being closed down. Not many are eager to invest in education. Such high-handed approach further dampens the spirit.

It is just not the state bodies even the municipalities act in a queer way. Some who tries to sell fast food comes across bands of local body functionaries demanding their share or the licence, which is not easy to procure.

The nation has to rethink on what ease of business really means. Does a fast food-seller really need a licence? A pragmatic approach, including on ecological issues, across all businesses are needed for the nation to thrive. It may be a good subject of study for NITI Ayog.

Rising prices as the consumer index indicates may further impact demand. The rainfall deficit and high oil prices may further stiffen conditions.

As inflation is crossing RBI tolerance limit, rightfully it has to firm up interest rates. It also 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 corporate. They had taken unnecessary huge loans since 2010. Increased rates would possibly make them more responsible.

But the state has to act firm on rising prices. It should not be treated as a ‘normal’ phenomenon. The falling rupee increases impact of oil prices and further weakens the currency. The minimum support price hike for farm products is double-edged. It may marginally help the farmers but hit the consumers more as food grain and products become expensive.

It hits demand. The 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 23 industry groups in the manufacturing sector showed negative growth. It indicates the broad-based nature of slowdown.  The best performing are the mining and electricity sectors.

The Indian economy has many challenges to face. Some cues may be found from the UK and EU visit US President Donald Trump. Cowering under pressure NATO allies has 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 also its answers in Trump dialogues.

May be the future would be better for India but it has to check the prices to ensure growth.

(By Shivaji Sarkar, Views expressed are personal)

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