THIS IS HOW ALL THE MONEY IS COMING INTO SIPs…..

about 2 years ago
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BY Ruma Dubey

Ramnikbhai was a small garments shop owner in Surat. He took great pride in sourcing his collections from Mumbai. But nowadays, he just sits around on his charpoy, watching the world go by.

In Rajkot, Nanikbhai too does not do anything much; his small shop of grocery has shut down and he has discovered a new love for soppy serials on TV, of course all with a bottle of liquor.

This is the story of majority of the small, micro and medium units. They are all simply shutting down, especially in Gujarat. No, this is not on account of demonetization or GST, this has been happening for the past five years. Blame this on the cheaper Chinese imports, bigger players enjoying much bigger economies of scale; over the years Govt policies have favoured only the big industrial houses, leaving this entire sector neglected and relegated to dusty roads.

But all these small and micro unit owners have tried to secure their day-to-day living by turning to financial instruments. Earlier, before demonetization, GST and RERA, the most favoured avenues for investment used to be land, realty projects, gold, education, chit funds. Uncertainties and a sense of fear of putting their money in these instruments has pushed them to a more organized and “white” source of income – mutual funds, fixed deposits and small savings account.

This is what Scroll, in its report, “Ear to the ground” has also reported. Not just Gujarat, we see this trend in Punjab, Odisha and Tamil Nadu.  In short, a slowdown in manufacturing activity is leading to a rise in financial investments.

These small, micro and medium size units are just not able to generate the kind of income required or rather the income which the financial instruments were giving exceeds their return from factory. Lack of demand has pushed units to shut down as most were working undercapacity and many lying idle. The Surat diamond industry is sitting on a huge inventory of six months and if not cleared by end of this festive season, the “holiday” season for the employees, which begins after Diwali, could be quite an extended one.

This is reflected in the earnings of companies and more pertinently, the IIP numbers have showed us that manufacturing is taking a hit.

Many say this is not how things should be – people are moving money from their primary source of income to financial sector; in fact it should be the other way around, investment in financial sector should happen only when there is enough production and spurt in economic activity. Today, the kind of SIP money which we see coming into the stock markets is all this money from small and mid size towns and cities. Money which otherwise should have been in manufacturing is all coming into the stock market – through IPOs as well as through secondary market.

Businessmen are hedging all their money/capital only in mutual funds and stocks and this in turn in fueling the markets – one is feeding the other, creating a bull rally, which further attracts more investment. This is what we have been seeing. How do you think there was a manifold increase in SIP accounts with mutual funds?

Earlier too, money always went to speculative avenues; there was hoard of black money to invest and it went into land, gold, dabba trading stock market, money lending, fixed deposits. Today, most of the others have shut down and thus the concentrated rush in stocks.

One side of this story is that it is good people have turned away from black money and are investing in transparent instruments. And it is good that more and more people are getting into the equity market. But the flip side to this story – if all start speculating only, who will manufacture?  Stock market cannot become the edifice of our economy; it stands on agriculture and industrial activity. Can you imagine the crisis we could have at hand if this market bubble goes phut?

Thus once again, there is an urgent need for the Govt to walk down the lanes of small towns in Gujarat, Odisha and Punjab and see how many units have downed their shutters. We need to work collectively to open these shutters. Let the money flow but with a balance; lopsided run into markets is dangerous for all.

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