In 2021 -22 financial year it is expected for the growth to be dimed, one important question is will we be able to stabilize the next 3 quarters? In the initial phase of the pandemic the people were in the high hopes of a vaccine. But with the new variants it is a worrying factor that weather we will be able to sustain our growth.
The economy is not doing good but the market is ignoring it
Stock market is the collective wisdom of the people. The cooperate profitability was high in the past quarters. As per the Warren Buffet indicator we are still not over valued when compared to the global market. When we look into next few months it is expensive but in the longrun it isn't. It is the cooperate profitability that the market and the investors are seeing which is 2.6% of the GDP. As profitability is a crucial factor in the market it can be seen as the driving force in the market. Commodity companies are looking good globally other than the FMCG companies, we can see a gloominess in the banking sector which is a result of the earlier changes and NPAs ,But in the next quarter it can bee seeing stability.
Unemployment and Middle class
The biggest worry of economy is unemployment in the service sector which has been hit hard which is seen as a major employer in the country hotels, malls etc remain closed or partially shut. In manufacturing we are seeing few groth but it is slow as the supply chain has been hit hard.MSME sector is also lagging behind government intervention on banking,NPAs, Moratorium all these effects will be seen in the markets soon. Even though some sectors are lagging behind the companies are doing really good.
Where is this money coming from? Is it FII or DII?
Investments are coming from retailers,mutualfunds,institutions as well as foreign institutions. Work from home has resulted in record demat account opening and very high participation of retail investors in the market and in the first and half year everyone looked confident. What is interesting is that there is a high upper hand for FII in Indian market especially in unlisted market sector. Market participation has increased in the longrun. Still the government has not been able to setup a proper checks on the insider trading.All kinds of investors are participating in the market.
Will we see a correction ?
Government of India has made many reforms in the past but we should expect both the Centre and the state to focus more to the market especially in the MSME sector. Support is also needed in various other sectors too.If the government is able to provide a bill discounting system which will ensure the markets to get more smarter.
Pricing mechanism is the only way that will help the market and economy as giving out loans every time wont work.We wont be expecting a large correction or if at all we can expect a gentle decline. If the inflation rate and the interest rates get tighten up in the US.The foreign funds that became crucial for the bull run are likely to go.
How can we save the economy? Only two reforms 1. Rule of law : There should be proper watch on how the business process is done, if there is rule of law then it is easy for the funds to flow. 2. The role of entrepreneurship that we have not been able to respect as the job creators. The street vendors paying haftas, the new entrepreneurs who go into a spiral of regulations and tax issues and other competitions. Constraints are there in setting up business in the country and this needs to go. Entrepreneurs are the ones who create the jobs and accelerate growth the government should respect them.
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