Melt-Up 2018 In The Indian Bourses But Why?

Melt-Up 2018 In The Indian Bourses But Why?

Three weeks into the new-year 2018, the Indian stock market is still scaling new peaks.  Meanwhile, Jeremy Grantham, an American “value investor”, earlier predicted a stampede upwards in the US equity market too.

Bill Miller, another noted US investor, thinks if the US Treasury yield rises to 3% from a recent 2.53%, the American equity market could go up another 30% from present levels.  

This happy upsurge is fashionably being termed a “melt-up”, to be followed, says Grantham, by a steep fall- the classic melt-down. However, with the American economy growing strongly, this may be not be coming anytime soon.

Grantham also thinks the big money to be made now is in the emerging markets.

India has been plotting its own course lately, powering ahead as one of the best performing emerging markets in 2017. And this, not just on the back of the $15 billion, or so, of annual Foreign Institutional Investors (FII) money, as in years past. This time, it is its own domestic flow, largely from local  Domestic Institutional Investors (DII), and millions of retail investors. The latter is largely using the mutual fund route, which seems to have come of age after over 20 years of trying.

The balance achieved by domestic investment is reducing volatility, because the FIIs now need far more than the smallish allocations it makes every January  in order to dominate. The Debt market too, is perking up, after the Government announced a reduced new borrowing programme of Rs. 20,000 crores in place of the expected Rs. 50,000 crores.

To the more holistic, less technical thinking of the investing public, the daily tickertape analysis that indicates a sturdy bull market is because of the accumulation of relentless modernity being engineered by the Modi Government.

For that matter, the global economic cycle seems to have also turned for the better. This, after the ravages of  2008, of grappling with a massive debt overhang and recession. The recovery in Europe and America   also has its own beneficial knock-on effect in India.

The No.2 economy, that of China, the 2^nd biggest after the US, has meanwhile done little to tackle its massive debt, largely in opaque domestic sectors of its economy. And despite its world domination ambitions, its economy is definitely slowing down. Here, if there is a big, uncontrolled, melt-down, it would trigger a worldwide recession afresh. A Taleb-style Black Swan therefore is certainly swimming in the global lake.

Meanwhile, India is ploughing through its longtime vested interest fault-lines, leaving protesting ancien regime  protagonists scrabbling in the dirt. There is a long list- Demonetisation, GST, the Benami Law, RERA,the Bankruptcy Code, the amended Company Law, recognition of NPAs, AADHAR, direct crediting of subsidies into newly opened bank accounts, increasing digitization,  other cash usage restrictions, administrative reforms, a drive towards accountability in the bureaucracy. All this has disrupted the use of black money, the cash economy, corruption, tax evasion, and a sense of entitlement.

But despite these courageous and politically risky moves on the part of the Modi Government, more than 450 million people in the growing Indian middle class seem agreeable to take the pain of a shift from the old nod and wink systems, in favour of the new.

It is they who are investing in the stock market, not only from the metro cities, but from the hinterland of tier 1 to 4 cities and towns. These now house nearly 50% of India’s aspirational population, and mutual funds have seen a 46% uptick in investment from non-metro areas.

Strangely, given the considerable amplification of negative views from the Opposition and its friends, the public is not buying the gloom and doom line.

Besides, 2018 has begun with a busy month of January for foreign affairs where the Modi Government has shown tremendous progress. Israel’s Benjamin Netanyahu is here on a six day feel good state visit with a massive business delegation in tow, returning Modi’s celebrated 25^th anniversary of diplomatic relations visit to Israel last year. The Prime Minister is travelling to Davos thereafter to deliver the key note address at the plenary session of the World Economic Forum (WEF). He is returning to host 10 heads of government from the ASEAN countries at India’s Republic Day celebrations on the 26^th of  January.

In Davos, Modi will probably interact one-on-one with President Trump, the first US head of government to  visit the Swiss Summit in 18 years, even as Modi is the first Indian Prime Minister to go there in 20. This possible meeting is interesting to the Indian observer because Trump began the new year by suspending military aid to Pakistan. And both Pakistan and China say it is at the urging of India. This, though it is simplistic, makes for an excellent advertisement for Modi’s effectiveness. At the same time, both hostile countries have realized that they cannot, despite their combined advantages, provocations, and constant menace, get the better of India militarily.

While India’s own Central Statistics Office (CSO) has projected 6.5% GDP growth  in fiscal 2017, the World Bank  is expecting 7.3%  for fiscal 2018, and 7.5% for two consecutive years thereafter. China is expected to grow at no more than 6.8%.

Another laurel wreath,  is in the anticipation of India becoming the 5^th largest global economy in absolute terms,  just overtaking France and Britain, in 2018, and on its way to becoming the 3rd.

At the micro level, the stock market is expecting better quarterly results from many of the listed companies, and an uptick in private sector investment has resumed. Credit off-take has risen 10%.

The 2018 pre-general election budget is expected to address the concerns of a slowdown in the rural and farming sectors, combined with encouragement for the urban classes and even the captains of business and industry. Yet it is slated to control the fiscal deficit after all. The Government always has monies unspent to tide it over the budgeting exercise.

There are however several crucial Assembly elections scheduled in 2018 that will act as weathervanes for the general election of 2019.

The Rajya Sabha (RS) will finally afford a majority to the BJP/NDA  around August 2018, enabling the Government to pass a number of reformist bills with little effective opposition.

Interestingly, there are pronounced shifts in the political narrative too. After years of being accused of being majoritarian and communal, even as the BJP under Modi has been emphasizing “Vikas”, the shoe is on the other foot. We are witnessing  the Opposition, led by the Congress Party, West Bengal’s TMC, and even the almost irrelevant CPM, wooing the Hindu vote, and stirring up old caste conflicts.

Congress under its new President Rahul Gandhi is being particularly revanchist. It is casting its secular fate to the wind. It refused to support the gender equality of the Triple Talaq Bill in parliament, even though it will be pushed through by the Government perhaps in the budget session itself. Simultaneously, it is supporting  hastily recruited casteist outliers, fringe Hindutva protagonists, Communists, and even disgruntled elements in the higher judiciary. It is giving crass vent to its frustration via fear-mongering and rank abuse, even from pulpits abroad. The Muslims and even the Christians are feeling abandoned in the process. But none of it is giving it any electoral victories to speak of.

The Opposition’s old-style Muslim vote bank politics is unable to subdue the rise of the BJP any longer.  Not only is the BJP popular vote share consistently going up to even more than 50%, it is cutting across the board. This, from the panchayat level to parliament.

The Government has just cancelled the Haj subsidy but the saved money will be used to provide services to minority women and children. The Muslim vote bank, it appears, may soon be cracked wide open by the BJP, and this possibility has not been lost on  the likes of Congress and the TMC. A few Shia Imams, Maulanas, and other Muslim thought leaders, are also edging towards the Saffron Party. And a solid boost to Hindu sentiment can be expected if the Supreme Court allows a Ram Mandir to be built in Ayodhya.

A shift towards the BJP may be taking place, despite Church opposition, in parts of the Christian majority North East, and in a more diffused manner, elsewhere in the country.

All in all, the melt-up is not being restricted to the stock market .

For: The Sunday Guardian

(1,399 words)

January 18, 2018

Gautam Mukherjee

A Keynote Address From A Rising Global Icon At The WEF 2018 In Snowy Davos

A Keynote Address From A Rising Global Icon At The WEF 2018 in Snowy Davos

Narendra Modi’s visit to Davos comes twenty years after a “humble farmer” and consensus prime minister, sitting atop a shaky coalition and  also-ran economy,  merely participated, in 1997, at  the World Economic Forum (WEF).

Prime Minister Modi will not only go to the Swiss mountain-top for 2 out of the 5 day event, but will deliver the keynote address at the plenary session on January 2 3^rd 2018.

India will also host the welcome reception at the outset of the summit, replete with Indian cuisine, music, jugglers, acrobats, fire-eaters and yoga demonstrations.  

Marking its confident presence at Davos will be a contingent of 100 major company CEOs, 6 Union Ministers and 2 Chief Ministers from India.

Prime Minister Modi’s star-turn at snowy Davos will follow one by President Xi Jinping of China who did similar honours last year. Perhaps the time has truly come to not only hyphenate these two great powers, but contrast their meaning to the world.

Xi, in his rather ritualistic and formal way, staked a claim to global leadership and indeed climate control too. This, in the backdrop of  a Trumpian “America First” policy and refusal to endorse the Paris Climate Summit. This was perceived, a little  too hopefully by some, as a retreat from America’s “globocop” avatar, not to mention its Numero Uno positioning.

India comes to Davos 2018 with a burgeoning security cum economic relationship with the US, Japan, Israel, Russia, Australia, Iran, Afghanistan, the UAE, Saudi Arabia, and several ASEAN countries- disturbed by the goings on in the Malacca Straits, the South Chins Sea, and even the Indian Ocean.

Sympathetic noises have also come in recognition of India’s position from many African countries and the other bits of BRICS of late too.

A unipolar Chinese domination in place of  the US is not palatable to any country other than perhaps a helpless Pakistan and North Korea, with even these two satellites chafing at the bit sometimes.

Much of this is not only due to China’s territorial insatiability and military menace, but also rapacious commercial terms for its infrastructure building abroad. Countries that have fallen prey to Chinese blandishments such as Myanmar, Sri Lanka, Nepal, Maldives, Malaysia, Bangladesh, Pakistan,Venezuela, are all realizing, too late, that they are all on the brink of bankruptcy, and that China is the new owner of all that they possess.

India, by way of contrast, is working benignly with Iran, Afghanistan, several of the Central Asian and African republics, Bhutan, Myanmar, Bangladesh etc. alongside Japan sometimes, and is clearly not seen to be predatory.

India’s economy, though four-times smaller than China’s, is not nearly as burdened with debt. Though China trundles on, with a debt overhang of 260% of its GDP, the question is, for how long, before the avalanche strikes?

India in fiscal 2017, despite muted growth, by its own standards, at under 7%, is nevertheless slated to grow again, at a significantly faster rate than China, by 2019.

In 2018 itself, it will take the 5^th position in the economies of the world, ahead of Britain and France.

In more ways than one therefore, India is signaling that even though it is hampered by its red- tape-loving bureaucracy and socialist hangover, its demographic fault lines, inefficiencies, dirt, and pervasive petty corruption, it is also taking definite strides to develop into a modern state.

Modi is both a symbol and fact of this exciting new trend, and exudes the determination to see it through.

The 3,000 global leaders expected this time in Davos will witness and feel the considerable dynamism, confidence and charisma of the world’s most famous “tea seller” made good, (as Ivanka Trump recently put it in Hyderabad).

Modi heads The National Democratic Alliance (NDA), that enjoys an absolute majority in the wholly-elected lower house of parliament in the world’s most populous democracy. And this for the first time in 30 years.  

He is clearly an Indian Prime Minister that has made an unprecedented global impact, in under four years, with many bold foreign and domestic policy initiatives.  A man of destiny, Modi has come to power at a time that India and China not only account for a large proportion of the world’s population, but also much of its economic growth prospects.

The situation is all the more remarkable because India is progressing while running a vibrant, some would say, over raucous, constitutional, universal- suffrage based democracy. And despite many accusations of dictatorial tendencies, Modi has only flaunted his uncommon ability to take virulent, unjustified personal abuse, without any hint of retaliation.

That the NDA runs 19 of the 29 States in the Indian Union presently, up from just 4 when the NDA came to power in 2014, with a prospect of adding to its tally before the end of its first term in 2019, is clearly impressive.

But that it is also most likely to win a second five year term of office at the Centre, in 2019, is the compelling context to the largest Indian delegation ever to visit the WEF at Davos.

That the WEF as an organisation has been bending over backwards to woo Narendra Modi by giving him equal billing to Xi Jinping last year, is a recognition of present reality. This is a departure, truth be told, from the 1971 established NGOs attitude towards him, when he was Chief Minister of Gujarat.

So now, quite apart from the themes enumerated for the plenary and other sessions to be addressed by Prime Minister Modi, and indeed, other members of the Indian delegation, the influential gathering will be keen to interact with the leading lights of  this nearly pivotal democratic polity.

The Indian Prime Minister, on his part, will return from this summit to host the entire leadership of ASEAN at India’s Republic Day celebrations at New Delhi on January 26^th . This too underlines India’s greater outreach, relevance, and the emerging success of India’s Look East Policy.

For: SirfNews

(987 words)

January 9, 2018

Gautam Mukherjee