Earlier this week, the Nifty index reclaimed the ‘psychologically important’ figure of 11,000.
While business channels quickly got their flashiest flashes on to announce this newly re-conquered summit, there was circumspection underlying the jubilation. As there should be.
If 2018 was a watershed year for equities, 2019 is proving to be a year where you’re the only little boy or girl who hasn’t been invited to the birthday party.
As things stand, in the last month, the Nifty has eked out a paltry 3% gain for itself while developed markets like the US are up 8%, Germany is up 6% and France has gained 7%. Not much different for our neighbours closer home where Hong Kong is up over 9% and even the broken, beaten Chinese stock market has rallied about 7% in the last month.
Slice the numbers another way – in the emerging market space, the MSCI Emerging Markets Index is up 9% while a market like Brazil (that admittedly was an outperformer in 2018) is up almost 30%.
There’s another, grimmer side to the tale. And it lies across the midcap desert, littered with stocks that have been beaten to a fraction of their value. Year to date, the midcap index is down over 6% – of course in the last year, the cuts have been far deeper.
Every morning brings new zingers. After Anil Ambani-owned Reliance Communication announced that it was filing for bankruptcy, stocks with high promoter pledging (or rumours of it) were slammed – and the list sounds eerily familiar. ADAG stocks as they are called in the market turned turtle, JP Associates, IRB Infra, Adani Power followed.
It was a scene that was playing out quite similar to the summer of February 2008. Reliance Power backed by marquee merchant bankers was oversubscribed to its gills (72 times to be precise). Within minutes of the stock listing, however, it tanked. The first four minutes of trade were the only time in its entire trading history that Reliance Power held above its issue price. After ringing the customary bell, not one representative from the R-Power team stepped forward for a “sound bite” that fateful morning.
It also marked, in retrospect, the beginning of an ugly bear market patch for India. Things began to come unstuck. Questions by TV anchors about a stock’s “embedded value” got swapped for “pledged shares” and sectors like infrastructure and real estate came down with a large, resounding and fairly final thud.
So, here we are ten years later. With an interim budget that has more figures (and alternate figures) than you can have questions. Statistics are being revised at a frenetic pace. Pick a dart and pick a figure, GDP, fiscal deficit, current account deficit, divestment proceeds, unemployment – as the hapless NITI Aayog vice chairman put it, at a recent press conference over the NSSO embarrassment: “I don’t know”.
If last year’s Union Budget brought with it the dreaded return of LTCG (long-term capital gains tax), there are now rumblings of how the stamp duty changes announced in the interim budget will hit trading costs for proprietary traders.
Even as corporate India was quick to gush over the low on details budget document as visionary, inclusive and even “not too damaging in a political year”, the question is, why isn’t the market’s needle moving a lot?
Money from FIIs is slowly coming back. Domestic institutions have consistently held the market’s chin up. But the investor is getting fidgety. SIP returns for one year have turned negative. Even worse, the mid-cap oriented funds are reeling with double-digit losses.
Crude, which gave the government some breathing space last year, looks like it isn’t in the mood to be as compliant this time. Brent crude prices had plummeted close to $50 in December and have already snapped back to $62 this year. Interestingly, the surprise winner is stodgy, long ignored, gold which has rallied more than 10% in the last year (in rupee terms). Not too shabby at all.
So, what’s the crux of the problem? The answer, unfortunately, is that there are several. There’s a data credibility crisis, which is something rating agencies are now growing more vocal about. There’s a corporate earnings problem, which consistent earnings downgrades will tell you.
There’s also somewhat of a consumption problem, as most auto numbers are reporting through the last few months – Suzuki Motor Corp, Japan’s fourth-biggest automaker, booked a 33% drop in quarterly profit as sluggish sales growth in its top market India drove earnings to a two-year low. Added to that, election outcomes neither seem as straight nor as predictable as they did a few months back.
Many mutual funds CEOs I’ve interacted with have talked about how aggressively the industry is looking to mine the demographic dividend. Schemes and plans that cater to the millennials they say. Look at the saving potential, they explain. I buy it. I buy the logic that starting early with a savings mindset can go a long, long way in shaping a better middle-age run.
But I take on with greater caution, and I must admit fear, the numbers that the unreleased NSSO data pointed to, for unemployment. What do you save, when you don’t earn? What do you put away for a rainy day, when the rainy day is now?
I’ve always been a believer in the stock market. But I’ve also seen the incredible damage a bear market can do. To the mind and the spirit. So, while we root for rallies and levels, there’s a voice that whispers – there are lessons buried in the not so distant past. It would be wise to heed them.
Mitali Mukherjee is former Markets News Editor at CNBC TV18 and is currently Consulting Business Editor at Editorji.