EDITORIAL
The Sensex gained 479 points Monday last week, only to plunge 723 points Wednesday, which was followed by a 506 point rally Friday. This week too, the markets started off on a firm footing, rising 402 points Monday. The markets gained 374 points Wednesday which was in sharp contrast to a hefty 630 points battering it had received Tuesday. The markets were relatively less volatile Thursday.
The benchmark BSE Sensex fell by 45 points to 27206 on sell-off in export oriented stocks after rupee surged over 20 paise against dollar. The markets have lost nearly 10 per cent since it had reached its lifetime high in March. The markets have become overly volatile compared to that of other emerging market stocks like China’s Shanghai Composite and Indonesia’s Jakarta Composite index. Such yo-yo by the markets is at play when there is little changing at the ground level.
There is no dearth of bad news in the market—both locally and globally. Rising crude prices, dismal fourth quarter earnings, sluggish capex cycle, sub-par monsoon forecast, Greece and likely Fed rate hikes and you name it. Added to these is the technical reason. Foreign Institutional Investors (FIIs) are overweight on India. According to data from the Securities and Exchange Board of India, FIIs have sold shares worth Rs 14,826crore in the cash segment in the last 16 sessions of trade, barring 21 April when Daichi Sankyo sold its stake in Sun Pharmaceutical Industries. To this extent the market has become all the more volatile.
The rally seen last year was mostly fuelled by a perception that the new government will change the economy for the better in super quick time. That did not happen. On the contrary, we have a government which appears to be on the defensive about its performance. Going by the way it has been steering its policy play, clearly, the government is not confident of itself. Another problem is the double-speaking by the chief mandarins of the government on tax front, be it MAT or corporate taxation. The government is unable to push through important legislations due to its minority in the upper house.
With IIP falling and monsoon likely to prove truant, the economy seems poised to face multiple challenges going forward. Retail inflation, which cooled to a four-month low in April and industrial output growth slipped to a five-month low in March, has sharpened the demand for a rate cut by the RBI at its next meeting. Deflationary pressure continued for the sixth month in a row with inflation dropping to a new low of (-)2.65 per cent in April, mainly on account of decline in prices of fuel and manufactured items even as food prices increased.
Besides, there is another problem at hand which the government can correct. This is the defiance by over two dozen commercial banks which steadfastly refused to pass on the benefits of the rate cut to consumers. Cut or no cuts by the RBI, the central back should be able to enforce its order. RBI is however hamstrung on this score as is vouchsafed by the helplessness of Governor Raghuram Rajan. No wonder, rating agency Moody’s Wednesday warned that India’s fiscal metrics were weaker than its peers like Indonesia, though its growth rate could be better than those of its peers.
