Life was not it’s usual self on the Monday morning, as staff members read and re-read the erudite good bye note from their boss, when the delivery boy walked to the heavily guarded main gate on Mint Street. It was an unusual delivery, from a certain Cook, a basket of green apples, for Boss.
The series of big bang reforms, yes these are some really good set of reforms that were announced just before the apples were delivered, are aimed to address multiple concerns simultaneously. At the top level, we need a lot more FDI then we have got to maintain and accelerate the growth momentum of 7 % plus. In the absence of any credible alternate number let us stick to what has been cooked by our chief statistician. Our public finances and our domestic private investment are simply not enough to achieve the growth required to pull up the vast majority of population that still lives at below subsistence levels.
Secondly, most of the FDI in the past few years has been in the service sector, which can help the growth momentum, but does not do much on the employment generation. The set of reforms announced aims to attract FDI in manufacturing that would eventually benefit the SME manufacturing units as they would be the ones providing all the ancillary manufacturing to the big boys.
Thirdly, some of the sectors being opened up have really been languishing for want of fresh technology. We cannot aspire to be a superpower in military terms (and not just through Yoga power) if we have to depend on imported military hardware. Opening up defence, whatever the leftist parties may say, to FDI would be big boost in our military preparedness, as the real big boys can come in and open shop. Similar story holds true in the food space where names like Wal Mart can add tremendous value. These would also be a big positive for employment generation.
After the Bankruptcy Code which heralded a fresh thinking on the entire banking space, this is the second round of big reforms that the government has announced. These reforms are good in itself but also need to be analysed in the overall global and domestic context.
Our Hon PM had just completed a very high profile hectic multi nation visit, mainly aimed at gathering support for our NSG membership bid and consolidating the Indo-US relationship. There were lot of investor meets during these visits and there was a reiteration of our assurances to further open up the economy.
Almost all the countries that he visited assured him of their support for our membership. The recently innovated, “Doctrine of Hugs” policy worked. He delivered a fabulous speech at the US Congress to the extent it sounded very surreal for us back home who on the same day were treated to yet another unwarranted discussion on trampling of free speech. One needs to have some sense humor to digest the “news” dished out by some our media.
The expected results from the US visit did not materialize. The US subsequently rejected the bill that would have made India a strategic ally, and to rub some salt on the open injury, the US also decided to continue with its aid policy to Pakistan. Next our Hon MEA, kept claiming that China was mellowing down on its resistance to India’s NSG bid, until the Chinese stated the fact that India’s NSG membership was not on the table for the Friday meeting in Seoul.
We have the second most definitive event of 2016 scheduled on Thursday when the British would decide on the fate of EU. Yes, the vote is not just on whether Britain should stay in EU, but in terms of implications, whether EU should stay or not, for if Britain decides to exit, how long EU would survive?
Given this global backdrop, the week was anyway expected to be hot, and to make it even more exciting the Bond from Mint Street had sent his sweet missive on Saturday eve. Can we really blame him? Who would want to continue to work in an organization where his colleagues cast aspersions on his capability and also integrity and his seniors watch the fun.
The decision was done not on the day when Swamyjee expressed his opinions, but on the day when the PM decided to hold his opinion to himself. Now our PM definitely is aware of the need to have talented people in his team, he is pretty good at picking them from the available pool, and appeared to favour extending Rajans’ term. The decision was confirmed when the panel was appointed, that’s when Rajan had begun the exit process.
There is not much the whole lot of parties who collectively call themselves opposition had done to bother the ruling party. The threat as such is never from outside. Most of the time it is BJP’s own team members who love to score goals, self goals.
In fact, Jaitley seems to have won over Mamta who has now taken up the responsibility to get the GST out of the Congress shadows, and her man Friday Amit Mitra appears to be doing a fine job.
All the reforms that were announced over the weekend, were obviously in the works for a long time. It is impossible to fabricate such heavy machinery over the weekend, so whoever claims that these reforms were aimed to neutralize the effects of R3 exit, needs to atleast study the reforms in the first place.
Assuming that the announcement (of the reforms) was timed to prevent any potential chaos in the capital markets, it appears that the equity market was on the net happy. This comes with the caveat that we mortal human beings who believe that we can study what the markets did and on that basis interpret why it did what it did.
For eg., a rate cut of 25 bps can be interpreted as positive or negative depending on which direction the market closes, and then appropriate justifications are given by the experts. The most convenient being the expectation theory, as if the market had shared her expectations to these experts. So instead of opinions, let us stick to facts, which are difficult to ignore.
NIFTY -50 opened 55 points gap down on Monday morning as nervous investors pressed “Sell”. Then came news from New Delhi. It touched an intra-day high of 8244 but could not hold onto it, slipped a bit but still closing 68 points higher over Friday close. It is easy to conclude that the reforms announcement was able to soothe the nerves which had started fraying on Saturday evening. Atleast that’s how Lord Arnab concluded!
However, there are few more details that lie underneath the surface.
Firstly while the Nifty 50 moved up by 0.84 %, the broader Nifty 500 moved up by 0.72%, which rarely happens in a bullish market.
When we look at the sectoral movements, the biggest move was in the IT sector, more than double the Nifty 50 jump. With its weightage in the Nifty 50, IT stocks accounted for a sizeable share of the N-50 move. Besides other reasons, IT space is also favored for its play on currency movements against the Rupee.
The sector which was directly affected by R3 though his cleanup drive, the Bankex almost unconcerned. Within the index, ICICI was flat negative, HDFC very flat, and SBI gained more or less in line with N-50.
The domestic institutional players went and bought Rs 724 cr in net while the foreigners were net negative at 537 cr.
And then we come to the currency markets, where the rupee lost 37 paise, a considerably strong one day fall.
There are some more levels of details which we can ignore for they only confirm whatever inferences you have drawn so far.
So what happens now?
Actually nothing! Markets and economy are used to such changes and take it in its stride. Today on Tuesday, the markets opened flat, as if nothing has happened.
It is not that if Rajan goes India will come to a screeching halt. No way. No one is indispensable. We shall continue in our march to progress. There are a lot of predictions on the successor, with various names floating around, which invariably mean that none of them would be seen at Mint Street anytime soon.
We need to continue the dream run on Mint Street, something that Dr Manmohan Singh had got us used to when he discovered a gem for India. Now we can do better than Dr Singh or we can follow the current trend; Smriti Irani @ HRD Ministry, Gajendra Chuahan @ FTII, Pahlaj @ CBFC, Chetan Chauhan @NIFT, and may be the dream girl Hema Malini @Mint Street.
Who said “trend is my friend?”
Given that she is a professional artist, and likes to stay in Mumbai instead of that distant Meerut, she would continue to add a touch of glamour to the role. Swamyjee would have not have to spend any time investigating whether she is Indian. And eventually when she decides to leave, Apple Inc may still send a basket of green apples, but not out of envy.
Let us hope that such is not the case, and we find someone as good, if not better than Rajan. Wishing him all the best, and considering that age is on his side, we surely look forward to him coming back to an active role in India’s march to its destiny. Prayers are good any day, any time, any where, but looks very apt for now.