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The much-awaited impact of a new government on the economy and the markets is being postponed with quarterly numbers refusing to show any movement on the ground. September quarter company results too have been a disappointment. Many companies are now openly expressing disappointment. For example, Larsen and Toubro, India’s largest infrastructure company, has said it is lowering its guidance as it does not see much action on the ground.
In fact, Business Standard reports, India Inc's revenues and profits are now moving in opposite directions, thanks to a combination of poor demand and a collapse in global commodity prices.
Other capital goods sector companies too have given a weak guidance for the immediate future. Banking sector though has seen selectively better numbers but there is barely any growth in advances. Cement sector numbers too does not give confidence of much change in the business cycle since the Narendra Modi government came to power.
Saurabh Mukherjea in an article titled ‘Policy Paralysis Redux’ has pointed out that the ineffectiveness of the bureaucracy is holding back the conversion of the government’s will into action. The government will have to dig deep into its personnel management of the civil services if it has to make a difference to the quality of governance of this country, sums up Mukherjea.
However, investors seem to be tired of waiting, especially the foreign institutional investors(FIIs), as can be seen from the data of money inflow. In the calendar year 2014, FII inflows in the country totalled Rs 98,177.9 crore while the first ten months of the current year has seen net inflows of only Rs 21,841.83 crore.
The only reason markets have not crashed despite the heavy outflow of FII money is due to the rise in domestic investments. Indian investors continue to believe in the India story as can be seen from Rs 61,105.80 crore of buying in ten months of the current fiscal by domestic institutions as compared to only Rs 23,842.7 crore in 2014. Yet their buying has not been able to protect the market from falling but has been successful in cushioning the fall post the FII liquidation.
With global economies improving, FIIs have better places to invest rather than waiting on hope for the Indian economy to improve. Indian investors have no such option.
Udayan Mukherjee, consultant to CNBC TV18 points out that it is very difficult for an investor to stay bullish on the markets. It is not about Bihar but the missing growth in the overall economy that is spooking the markets. Analysts are now talking of reviewing the current year and next year’s numbers downwards.
Vetri Subramaniam, CIO of Religare Invesco Mutual Fund in an interview to moneycontrol.com said that the numbers of the present quarter might result in earnings downgrade in FY16 as well as FY17 by the end of the earning season.
So what can revive the market?
A positive election results from Bihar for the BJP is unlikely to have any impact, says Elara Capital. Elara feels that Bihar election is less about Rajya Sabha and more about supremacy and control. Heartburn in opposition ranks will only aggravate the trust deficit. In case the NDA loses Bihar, it will embolden them to continue with their strategy of stalling reform moves by the government. Elara feels that little business can be expected in the parliament this winter session.
Government will thus have to work outside the parliament in order to make an impact. Although some legislation is critical, the economy may have to survive on still many low-hanging fruits of executive reforms, writes Elara in its report. The move on expenditure management, including a DBT (Direct Benefit Tax) framework for government schemes, banking sector revival, closure of discoms’ financial issues need to be visible.
In other words, it is high time the Narendra Modi shows that it can govern with visible output. For the market this would mean that the policy measures gets translated into corporate results.
Irrespective of the Bihar outcome, Modi government will have to push the pedal if it wants to ensure domestic investors stick to their investments and reverse the cycle of FIIs exiting our market. While investors live on hope, it may not last for long if the present trend continues.
