By Pankaj Bobade
Equity markets were pregnant with expectations immediately after the honourable PM’s 8 pm address on May 12, 2020, and it was evident from the SGX Nifty’s immediate jump and domestic market opening the next day. PM Modi had promised support worth Rs 20 lakh cr to the economy, including Rs 9.9 lakh cr infused earlier by the central government (Rs 1.9 lakh cr.) and the RBI (Rs 8 lakh cr.) through various measures in response to fight against COVID-19 pandemic. Taking the cues from the steps taken by the developed nations to shore up their economies, domestic equity markets had conjectured the support in form of the stimulus or handouts/ helicopter money to be handed over to the affected population which would encourage them to spend on staples to discretionary goods.
The hopes built up by the markets dashed on the day 1 of the press conference of the finance minister which included announcements of loans, partial credit guarantees and relief measures in contrast to the much expected over-the-board incentives for driving consumption, which would kick start the demand-led investment cycle. It was because of the disappointment on the expectations that the domestic markets ended up lower on both Thursday and Friday. Day 2 and day 3 measures were also more or less on the same lines, except the three governance-related reforms viz., the proposed amendment in Essential Commodities act, reforms in agriculture produce marketing and facilitation of legal framework for agricultural products’ prices and quality assurance. If implemented in letter and spirit, these reforms are going to be the ‘1991 moment for the agriculture and rural economy’; these reforms are going to remove the farmers from the shackles of intermediaries and outdated Indian regulations to establish a free market for agricultural produce, which would have a long-lasting impact on the rural economy over the long run.
Proper implementation of these new reforms would help remove the intermediaries and free the agriculture and allied industry from the so-called ‘license raj’ leading to higher incomes for agriculturists and improve demand in the rural economy. Fund allocations have also been made to create & strengthen the necessary infrastructure for agricultural produce, fisheries, dairy farming, bee-keeping etc which would eventually reduce wastages and enhance supply chain efficiency, thereby improving the yield of the produce.
Over the long term, these measures may aid the long-drawn vision of doubling farmers’ income. With the implementation of these reforms and establishment of farm gate infrastructure, the gap between the farmers, the food processors and the end consumers is largely going to be bridged, thus helping the major chunk of the margins to be retained by the farmers which, so far, is being taken away by the intermediaries. These reforms would pave way for further deregulation of other sectors like fertilizers, and other assistance which is currently subsidized to the farmers.
The markets are not expected to react immediately unless the fruits of the reforms are seen in concrete form in the earnings of India Inc., but a positive start with a hope for further build-up as things get converted cannot be ruled out.
Further, day 4 & day 5 announcements too did not have much to cheer about, except the additional allocation of Rs 40,000 cr for MNREGA to offer work for the labourers who are returning from cities, which would be a booster for rural income in these challenging times. Additional borrowing limits for states, subject to undertaking reforms and enhanced borrowing by the centre would push the sovereign yields in the near term. Overall, the announcements made by the Finance Ministers in a series of 5 press conferences did not live up to the market participant’s expectations that were built up after the honourable PM’s address, making it another case of lost opportunity to address investors’ sagging sentiments.
(Pankaj Bobade is Head of Fundamental Research at Axis Securities Limited. Views expressed are the author’s own.)