Mes­sage From the Stock Mar­kets

Act on re­form, says year-end stocktaking

The Economic Times - - The Edit Page -

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.

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