about 12 months ago
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Hope the Modi Govt is tracking the stock market; they have always been very “market” savvy so it would be foolish to think that they are unware of the falling markets.

You read the headlines, be it electronic or newspaper, all around there are stories of slowdown and companies in trouble, consumption falling, inventory piling up for the auto sector and realty, cement prices falling (which is a seasonal factor), poor Q1FY20 results from India Inc; the list is endless.

There is a sense of disenchantment and foreboding. One does not know where this market will settle and how much downside are we talking about. The Govt has no money to spend on providing the required stimulus as it has already overspent on welfare schemes. The fiscal deficit is ballooning and it is itself wondering how it can raise more money this fiscal. There is talk of planning to take LIC public and of course, the never-happening sale of Air India. Thus post the Budget, there is no real sense of anticipation as there is nothing much to look forward to.

FIIs are sulking and like spoilt brats, selling to get what they think is their entitlement. How come we individual tax payers never get any attention whether we sulk or throw a tantrum? The FIIs are mighty angry with the surcharge levied on those earning over Rs.2 crore. Around 40% of the FPIs will now be liable to pay this surcharge. The way out is for them to convert themselves into companies from the current position of being a trust. The FM knows that this is the way out and said that she is willing to hear them out if they are finding the conversion process too tedious or not tax-neutral. That’s fair enough.

The Govt has walked itself into a trap – if it concedes to the wills of the FIIs, then surely the domestic tax payers will also rise in arms. Why the preferential treatment to the FIIs and they are left footing the bill for every worthless spend?

Having said all this, this stance of the Govt to take care of the income inequalities is completely misguided and terrible. In every society, there will always be the three strata’s of society – super rich, middle class and the poor. The way to address this cannot be by stripping the rich of their wealth but instead think and work on how to put more money into the hands of the poor. How to increase income for the others is what should be at the core, not how to increase the coffers of the Govt so that they can do some more mindless spending. The idea of robbing the rich to give doles to poor has never worked in any society and in any time in the history of mankind. Giving doles to the poor makes them lazy and taxing the rich acts as a disincentive to create more wealth. Merely imposing higher taxes without any benefits will only go on to further kill enterprise.

The FM is banking on domestic consumption to drive growth but where is the impetus? The FM has very conveniently put the entire onus of growth on the RBI, saying that it should go for a substantial rate cut, and this could revive growth. So RBI alone can today save the economy?

Let’s not kid ourselves and say that we do not need the FIIs and we can manage with the domestic institutions and LIC. Well, it is foreign investment which has got us into the over 5% growth club in the first place. So we need them but at the same time, there is no need to bow and bend to all their wishes. They do not love India or have any sense of loyalty to India. They will invest, irrespective of the surcharge if they know they will make money. Profit and profit alone is the lure and for that to happen, growth is imperative.

The truth is that today the economy is in a bad state and that is the weighing factor as they do not see anything concrete being done to lift it up in the near future. We seem to be merely waiting for the monsoon and harvest to boost consumption. Also lets remember that valuations were way ahead of fundamentals so this correction is justified, in fact a great opportunity to buy.

The Fed rate cut expected on Wednesday night and then the RBI interest rate decision on 7th August – essentially these two events will drive the overall moods or else it will be stock-specific action only.

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