Is the ‘Modi Premium’ Wearing Off in the Stock Markets?

As Modi completes one year in office, a sense of despondency pervades the customary reviews that ritually accompany such an event. Rumblings of discontent have emerged from various stakeholders and stock markets have taken the lead in signalling disappointment with his performance.

As Prime Minister Narendra Modi completes one year in office, a sense of despondency pervades the customary reviews that ritually accompany such an event. Rumblings of discontent have emerged from various stakeholders, including Corporate India. But it is the stock markets that seem to have taken the lead in signalling disappointment with his performance.

The bellwether index S&P BSE Sensex, comprising 30 stocks, has witnessed a major erosion in values over the past few weeks. From its all-time peak of 29,681.77 points achieved on January 29, 2015, the Sensex hit a low of 26,599.11 on May 7: a sharp drop of 3082.66 points (or 10.38%) in slightly over three months.

The capital market’s rebuff is symbolic: it tries to aggregate what’s going on in different parts of the economy and transmits its sentiment through one single number. And going by its recent behaviour, there seems to be plenty that is wrong, or perceived to be wrong.

Foreign portfolio investors, an influential investor segment in the capital markets, are a visibly disgruntled lot and they have been letting off steam by selling en masse. In the first 10 trading days in May (till May 18), FPIs were net sellers to the extent of $2.306 billion. FPIs enjoy disproportionate influence over Indian capital markets, primarily because they bring larger volumes to bear than domestic institutions. Low retail participation in the capital markets — either directly or indirectly — also keeps Indian markets shallow.

Tax uncertainties

These FPIs decided to head for the exit because of continuing tax uncertainty. Finance minister Arun Jaitley’s 2015-16 Budget had unequivocally clarified that tax will not be levied on the capital gains of FPIs in the current year. But, unfortunately, there was no assurance that past cases won’t be re-assessed. And, true to form, tax authorities sent notices to various FPIs to pay up for past gains. That precipitated widespread resentment, with some FPIs even going to court and, of course, venting their spleen by selling Indian stocks.

The minister, presumably rattled by the exodus and the bad publicity all this was generating, has gone out of his way to placate FPIs. Apart from putting all reviews and fresh cases on hold, he resorted to the time-tested stalling tactic: he appointed a committee. In effect, he has kicked the can down the road and bought some time. This incident also illustrates how FPIs have emerged as a crucial constituency, with an uneven share-of-voice.

Unsatisfactory corporate results is the other reason why Sensex is volatile. Many companies — especially in the mid-cap segment — have reported disappointing results for 2014-15, signifying that demand for goods and services continues to remain weak. A report in Mint has highlighted how Q4FY15 sales of 142 companies included in BSE-500 (and for which results were available) has grown at the slowest pace in 16 quarters since Q1FY11.

This is evidence that the economy is still far from recovery. The Index for Industrial Production has grown by only 2.8% during 2014-15. Consumer durables manufacturing contracted by 12.5% during the year, compared with 2013-14, signifying the lack of purchasing power in the economy.

Matters have been made worse by the unseasonal rain in many parts of the country this year, destroying hectares of standing crop, which typically comes to the farm markets in April. This is likely to further dampen demand for consumer goods in the rural areas. The stock markets are also trying to capture this trend.

Oil prices fall opportunity lost

One can argue that this is sheer bad luck and the government cannot be held responsible for this catastrophe. While that is true, it is also a fact that the government didn’t rush to reap the dividends of fortuitously low oil prices when it came to power. Since then oil prices have climbed 50%, spooked by the continuing West Asian crisis and some shale oil wells in USA shutting down.

There could be another charitable explanation for the unusually turbulent Sensex: that expectations from PM Modi might have raced way ahead of reality, especially after the depressing paralysis that gripped the economy in UPA-II’s second term. The common beef (pun intended) is that even the current BJP-led government has plumped for incrementalism, rather than bold policy measures they had promised.

There are two sides to this debate and both can be deemed valid. But, what is undeniably true is that the stock market has already started discounting PM Modi’s premium, even before he completes a full year in office. And, though the Sensex is still up 14.78% from where it was a year ago — it closed at 27,687 on May 18, 2015, compared with 24,121.74 on May 16, 2014 — it seems that market participants have already watered down their expectations and moderated their hopes about a magical, almost fantastical, turn-around in the economy.

Courtesy:

Published first in The Wire (http://thewire.in/2015/05/19/is-the-modi-premium-wearing-off-in-the-stock-markets/) on May 19,

and then subsequently reprinted in 

Gateway House (http://www.gatewayhouse.in/is-the-modi-premium-wearing-off-in-the-stock-markets/) on same day.

Geopolitics & Byomkesh Bakshi

Novelist Sharadindu Bandopadhyay created fictional detective Byomkesh Bakshi in exciting geo-political times, in Calcutta, then an interesting global city. The movie Detective Byomkesh Bakshi , directed by Dibakar Banerjee, tries to capture some of these fragments

Dibakar Banerjee’s film, Detective Byomkesh Bakshi, has split passions down the middle. But, this whodunnit is remarkable for other reasons: its desire to locate the story in turbulent geopolitical times and its portrayal of murky corridors of contraband trade.

The movie—apart from multiple directorial mis-steps (such as, an inability to re-imagine Calcutta’s streets of yore)—is a bit like a smouldering pot, blending not only interesting and menacing geopolitical fragments of those fraught times but also flavouring the brew with dark hints of suspicion targeted at the city’s Chinese and Japanese citizens.

The film is set in the Calcutta of 1942. The city was then a hub for the Allied forces, an oasis of rest and recreation for the battle-weary soldiers of World War II. The British naval forces were in retreat from the Indian Ocean theatre of war, pounded by a stronger Japanese fleet. As Emperor Hirohito’s Imperial forces marched across the Asian continent, having already captured strategic staging posts — such as, Penang, Singapore, Burma and Port Blair in Andaman Islands — the next logical stop was Calcutta. Japanese planes rained bombs on the city in 1942 (and also in 1944).

Here was a city occupied by foreigners and under attack from another set of foreigners. It was in pause mode, just months before the Allied forces would launch a massive counter-offensive in South-east Asia, under the command of Admiral Lord Louis Mountbatten. Intrigue, conspiracy, suspicion, black-market dealings were the daily norm. Throw in a couple of murders and a cross-border blood trail, and then detective-fiction meets geopolitics. Add to the mix opium smuggling to Shanghai and the setting for a noir narrative is complete. Into this combat zone, Dibakar Banerjee parachutes fictional detective Byomkesh Bakshi.

The director has simply followed the script. Writer Sharadindu Bandopadhyay had sired detective Byomkesh Bakshi in cosmopolitan Calcutta (the first story was published in 1924), a city at the crossroads of Asian commerce and trade, an entrepot brimming with Anglo-Indians, Chinese, Jews, Armenians, Muslims and Parsis, in addition to the Hindus. A riverine port—the country’s oldest operating port—barely 200km from the sea, Japanese bombers repeatedly tried to undermine Calcutta’s geostrategic position.

Sharadindu styled Byomkesh as a dilettante, an amateur sleuth, perhaps fashioned loosely on Dorothy Sayers’s creation Lord Peter Wimsey. But, more than a detective, he is a satyanveshi (truth-seeker) and pursues leads, clues and hunches with dogged determination, without regard for remuneration or recompense. His reward is solving the crime and apprehending the guilty; and earning a bit of fame (or perhaps notoriety) in the process is always welcome.

Byomkesh is astute, well-read and able to connect multiple dots. He untangles a sordid skein of seemingly disparate events—the murder and mysterious return of an opium smuggling kingpin, a disrupted Calcutta-Shanghai opium supply chain, crepuscular Chinese denizens moving in the shadows of legendary Tiretta Bazaar, the disappearance and murder of an innovative Bengali chemist, a coquettish Bengali-Burmese seductress floating ethereally in a silk-brocade cheongsam, the furtive goings-ons at a Japanese dentist’s clinic, the deathly pall of bombings hanging over a fetid Calcutta skyline, a British police commissioner concerned with a missing opium consignment.

In his books and stories on Byomkesh, Sharadindu was able to depict Calcutta as a modern city, where education, commerce, arts, literature, culture and religion thrived together. The Calcutta of 1942 — as represented by either Sharadindu in his books or by Dibakar Banerjee’s movie — is doubly likeable because of the stark contrast with present-day conditions. Today’s charged atmosphere of bigotry stands in sharp relief to that nonchalant air of tolerance, that comfortable sense of cosmopolitanism that has long been eroded by the steady flight of citizens, its culture of wide scholarship replaced by rote learning. Calcutta Port—renamed Kolkata Port Trust in recent years—is now encumbered by tonnes of silt brought in by the river from upstream and plays host to only lighter and smaller vessels,.

Sharadindu’s rendering of Calcutta as a global city will, sadly, remain encapsulated only in memories. That’s probably true of many other Indian cities.