EDITORIAL
The equity markets are nose-diving. The indices that were on a roll ever since the BJP named Narendra Damodardass Modi as its Prime Ministerial candidate in 2013 has lost most of its frothy fizz. The markets have shed a staggering 8 per cent over last 15 days. The Sensex has clawed back by nearly 3,300 points since it had reached its lifetime high of 30,000 in March this year. There is a clear sign of growing disillusionment among investors with the Modi government.
The fast-paced reforms that this government had promised ahead of General Elections are quickly unravelling. The government is a few weeks from completing 20 per cent of its total term in office, but the acchhe din seems to be going farther with every passing week. The rise in the stock markets over the last one year or so was essentially a result of the hopes that people had built up on the promises that the BJP had hard-sold to the electorate. None of the major reforms is yet to be introduced as most of the bills are stuck in Parliament courtesy the arrogant and self-righteous stance of the Prime Minister, what with his dogged stance on the Land Acquisition Bill.
Stock markets bled Wednesday with Sensex tanking 723 points — its second biggest single day fall since the Modi government took over. Experts predict a further fall in market. More than domestic investors, FIIs (Foreign Institutional Investors) have been disenchanted by the policies or the lack of it of the Modi government. Problem areas which this government inherited, such as the retrospective tax issue and Minimum Alternate Tax have put off foreign portfolio investors, as it seems there is no quick solution to them.
Despite laboured efforts by finance minister Arun Jaitley in the past few weeks to clear the air on these vexatious issues, foreign investors are still a confused lot, and rightly so. It is now nobody’s case that the government has any clarity or conviction on these policy matters. All these talks by the government and its mandarins to sooth the frayed nerves of foreign investors have turned out to be filibustering. According to the government’s own admission, as many as 68 notices have been sent to foreign companies and the total tax demand on account of MAT alone added up to Rs 602crore. While the government has maintained that the FIIs can approach authority concerned and these are legacy issues, some of them actually received a final notice, not a draft, from the tax department. The tussle between the tax authorities and foreign portfolio investors over taxing matters has made the latter cagey. FIIs have been net sellers of Indian equities of last 12 sessions of April in the cash segment.
The quarterly earnings have not surprised on the upside. Manufacturing data showed a slowdown. There is a general feeling of disillusionment among people, especially the middle-class with the government. Crude prices have begun to rise. Petro prices were jacked up last week by up to Rs 4 which will negatively impinge on the inflation numbers. India, which imports two-thirds of its oil requirement, will be directly hit by the rising crude prices. Indian rupee continues to weaken against US dollar reaching a one-week low of 63.54 Wednesday. It may be good for Indian exporters, but not for FIIs. If the RBI lowers interest rate, which looks more likely now considering the government’s emphasis on reviving growth, it will further weaken the rupee.
An interest rate increase in the US, which looks more likely now than in the past, will further weaken the Indian currency as it will force FIIs to pull out of the Indian markets, resulting in a corresponding rise in the demand on dollars. A lower rupee value means FIIs get less in dollar terms. Added to all these is a projected shortfall in this year’s monsoon prospects. All said and done, the odds are stacked against investors of Indian stock markets in the days to come.