As the stock market has rallied from recent lows, there has been a concerted effort by BJP and Modi backers to discredit the performance of the government. Nothing can be far from the truth. The Indian stock markets are responding to the efforts of the government, even as they remain cautious given the generally weak economic conditions in India and worldwide.
Now I know this is political season and such attempts are bound to be made. But sometimes it sounds really funny. Like when the APCO-propped Modi’s supporters made the outlandish claim that the markets were soaring because they were factoring in the victory of Modi in 2014. The publicists managed to even get a foreign analyst (easier to tap maybe!) to say some such rubbish. Poor souls these…..for they fail to understand that what is being seen in India is also being seen around the world. Do they attribute the generally high markets worldwide also to Modi? The US indices are at all time highs, and I guess they will credit Modi for that too!
Today, one analyst has said that the stock market at 21000 is worth just about 13000 odd, thanks to inflation. He is right. But only partly. Why? Because stock market performance must be seen in a global context. Lets take a closer look at how indices have performed worldwide:
BRICS nations: Well, the Brazilian stock index (BOVESPA) is still way off from its peak. It hit a high of 73000 odd sometime in the middle of 2008, and is today at just 54000 odd (26% down). The Russian index (MICEX) hit a high of 1950 around middle of 2008 and is today trading at only 1500 odd (23% down). Take big brother China, the world’s fastest growing economy, and the challenger to the big boss’s throne as it were. Well, its stock market (SSE Composite) is trading nearly 65% off at 2128 odd compared to its high of 6000 hit again around October 2007. The lone exception in the BRICS grouping that is doing better than our sensex is South Africa, whose market (FTSE/JSE) is at a new high of 45000 odd, about 40% higher than the 32000 odd in April 2008.
The developed world: Well, the US is the lone exception in this pack as well. All US indices (Dow, S&P and Nasdaq) are at their lifetime highs, with the Dow about 12% higher at 15680 odd compared to its previous highest around Oct 2007. Of the top four European economies, only the German index (DAX) is trading higher at 9000 odd compared to some 8000 odd around Oct 07. That’s the same 12% odd growth as seen in the case of the US. The UK market as represented by the FTSE 100 is lower than its lifetime high of 6930, barely touching 6777 recently. The French CAC 40 is trading nearly 40% off from its Oct 07 levels of 6100 odd. And the Italian FTSE MIB is way way off from its highest level of 50000, and even its interim high of 44000 odd hit around mid 2007, trading as it is at around 19000 odd.
Asian Tigers: Admittedly, the stock markets of the Asian Tigers are growing faster than India’s with Phillipines, Thailand, Indonesia and Malaysia all doing better. But then, there are others like Singapore, Hongkong and South Korea which are still considerably off from their highs.
Any discussion of the performance of the sensex should be done in a relative context because we are a part of a global economy. A bulk of the trading on the NSE and BSE is undertaken by FIIs and the factors that affect FIIs are the factors that determine worldwide market performance. The liquidity drive of the US Fed is of course the single most powerful of these factors, and its impact is clearly seen in the rallies in countries in Asia. The other global factor is the firming up of the dollar, not so much because the US economy itself over-performing (it is doing reasonably well), but because of economic turmoil worldwide. A strong dollar, accompanied by it’s recovering economy has led to its stock market overperforming.
Another thing that indicates that politics is there in everything these days, and especially in discussions of the economy, is the way positions on FDI/FII investments change with time. When the FIIs were pulling money out of India around June-July this year, naysayers cribbed. Today, when they are pumping in the money, rather than crediting the Indian government, they are talking about something else – this rubbish about inflation. When the rupee was crashing, the Indian government was at fault, but when it has strengthened, it is the RBI (not the government) that is doing a good job. Such pathetic politics is what has taken the spirits of the country down.
One last point. The Indian growth story is intact, even as there are several challenges in front of us. I plan to write on this later, but just reading The Mint of the last few days shows how the rural sector is booming with everything from income to consumption to HDI to other social indicators improving vastly in the last 7-8 years. The focus of the UPA government has been on this sector as is well known, even though the opposition wont give credit, and regrettably the UPA won’t taking it forcefully.
The real truth is that the crab mentality of Indians, mixed with the acute political bias of some in the business sector, is trying to belittle the efforts of the government in propping up the economy. This bunch of people puts all faults at the government’s doorsteps, and all achievements in the courts of others, including pathetically in those of the PM aspirant, Narendra Modi, who has very little to do in reality. But then what do we expect from someone who’s core identity revolves around #feku?!