Stocks, slowdown and signs of crisis

Loss of wealth has both economic and political implications.  

Published: 04th August 2019 04:00 AM  |   Last Updated: 04th August 2019 12:44 PM   |  A+A-

Stocks, BSE, Sensex, NSE

Representational image

Monday is a milestone for the stock markets—it will be a month since Budget 2019. In this period, benchmark index NSE Nifty has slid 7.67 per cent and the BSE Sensex 6.78 per cent. Almost every sectoral index, including IT, auto, finance, banks, healthcare, FMCG, realty, metals and energy, is headed south. It is estimated that the slide translates into a loss of around Rs 15 lakh crore in investor monies in the past 30 days—rendering the Indian stock market among the worst performers globally. 

The bearish mood driven by disappointment and despair is manifest in factoids—dredged and collated off the database from the bourses, of companies with a market cap of over Rs 100 crore. Stock prices of over 800 companies hit a 52-week low in the calendar year 2019—of these, over 600 hit the low point post the budget. Prices of around 125 scrips hit the all-time-low mark this year—over 90 of them hit it after the budget. 

Vodafone-Idea is India’s second largest mobile player by subscription and its shares are at Rs 6.30 per share, quoting below the par value of Rs 10—along with two dozen others, including sarkari jewels United Bank, IFCI and MTNL. Stock market analysts invest a lot of weightage to the book value of a company’s shares. There are over 350 companies which are quoting below their book value—either the investors are sceptical about the value on the books or bearish about the future. 

ONGC is India’s largest public sector undertaking and one of the seven Indian companies on the Fortune Global 500 list. The market value of all of it's shares is less than the worth of its reserves. And there are over 300 companies where the market value of shares is lower than the reserves held by the company. Keeping ONGC company are marquee names such as Tata Steel, SAIL, Oil India, BHEL and Vedanta. The phenomenon is a reflection on both public sector management and the investment climate in the economy. 

For sure, the average John Jaani Janardhan is not a direct player in the stock market and invests savings through the mutual funds. How is the money parked for education, marriage or retirement in the mutual funds faring? Almost every equity mutual fund rated and assessed is reflecting a loss of between 9 and 5 per cent in the net asset value of the rupee invested. As of June 2019 over Rs 25 lakh crore is parked in mutual funds, over a third of which is in equity. Loss of wealth has both economic and political implications.  

It has been seductively fashionable to argue that the state of the stock market is not THE true indicator of the nation’s economy—finance ministers have in the past claimed they lost no sleep and that Lajpat market matters more. Bravado aside, there is no denying that it is ONE of the indicators of the health of the economy—after all, the expansion in the top line and enrichment of the bottom line of the mega corporations determines the bottom line of the government of India’s revenue sheet.

The vignettes of the slowdown are eerily reminiscent of the 1996 slowdown and manifest in anecdotal and empirical data. There is the imagery of empty hoardings and billboards and then the sectoral cries of Mayday. The financial health of companies is best illustrated by ratings—this year, 167 companies have been downgraded versus 77 last year. Telecom firms owe Rs 92,000 crore in pending licence fees to the government. Losses of SEBs are overwhelming the gains of UDAY.

The Purchasing Managers Index for services and manufacturing has contracted and exports are shrinking, rendering productive capacity idle. An instructive way to look at the slowdown is to view it through the prism of scale and footprint.  The auto sector is one of the biggest contributors to manufacturing output. Every marquee name—Maruti, Ashok Leyland, Tatas, Bajaj, Mahindra, TVS, and Hero—is struggling with a pile-up of inventories. It is feared over a million jobs could be hived off. Real estate and construction hosts the largest number of seasonal workers from rural India—220 projects with 1.74 lakh homes worth Rs 1.77 lakh crore are stalled. 

The causative factors of the consequences faced by the economy are located in how the government manages its resources. The expenditure of the Centre has gone up from Rs 10.4 lakh crore to Rs 24.5 lakh crore, and that of the Centre and states as per RBI shot up from Rs 18.5 lakh crore to Rs 53.6 lakh crore between 2009 and 2019. 

Last year, gross tax revenue in 2018-19 estimated at Rs 22.71 lakh crore fell short of the target by Rs 1.91 lakh crore. While the government maintained the fiscal deficit level on paper, the fact is a major chunk of the expenditure was off-balance sheet. The importance of money, Keynes observed, flows from it being a link between the present and the future. 

There is no such thing as a free lunch. The stated and unstated, estimated and actual expenditure of the government has squeezed liquidity, rendered credit scarce, crimped consumption, detained demand, interned investment, job creation and thereby incomes and growth. The signs from the economy signal a crisis ahead. 

Expectations play a major role in the economy. There is the endogenous issue of government expenditure and the exogenous factor of global uncertainty. Aggravating sentiments is the policy approach --- in its actions and a sense of drift from inaction. 
shankkar.aiyar@gmail.com

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