Message From the Stock Markets
Act on reform, says year-end stocktaking
March 31, 2016, was a good day to take stock. The Sensex and the Nifty measure, respectively, the performance of 30 and 50 most valuable listed stocks. The former is down around 16%, the latter around 9% from their levels one year earlier. A broader index, which measures the performance of 500 leading companies across sectors, the BSE 500, is trailing its year-ago level by 12%. Some of this can be attributed to global distress: overseas fund managers have taken money out to park them in safe havens like US Treasuries; once prosperous sovereign wealth funds belonging to oil-rich countries like Saudi Arabia, UAE and Qatar are hobbled by the global crash in crude and liquidating emerging market positions for cash. Export-oriented sectors like IT are expected to fare poorly. On Friday, this newspaper reported that India’s top five IT companies are likely to report low single-digit revenue growth for all of fiscal 2015-16. Even domestically, Indian companies are faring poorly. Third-quarter results, till end-December, were dismal: sales shrank marginally and operating profits fell 19% year-on-year, the worst performance since the June 2009 quarter. A recent report by brokerage Credit Suisse shows that the return on equity (ROE) — what investors hope to gain from owning stocks — for Indian companies is half 2005 levels, to little more than 12% now. This cuts across all sectors and is similar to the slide in Chinese equity. But while China’s decline has been noted and sold off, India’s misery has passed under the radar.
This trend of underperformance must be halted and reversed. The government has to pick up the gauntlet. Public investment, especially in rural India, has to be boosted massively to replenish aquifers, improve irrigation and plug leakages in subsidies by rolling out direct transfer of benefits. Job creation, a 2014 poll promise, will not materialise till industry and services pick up. But schemes like NREGA, largely overlooked for the last two years, must be boosted massively to increase rural demand, besides to alleviate drought-induced distress.