Diwali Lights
Diesel deregulation however, coming in tandem with the slight hike in gas prices
will make further exploration, particularly in the deep well areas, and
resultant production more viable, particularly as it will be periodically
reviewed. But should the case be made to remove subsidies on largely gas-fuelled
chemical fertilizer as well?
Meanwhile, the big wins in Maharashtra and
Haryana has placed an estimated 40% of the GDP producing engines under direct
BJP rule. Coupled with reforms that will encourage and render viable ‘Make in
India’ and the resultant FDI, this percentage should gradually represent much
larger absolute numbers, if not a lion’s share of India’s profitable
manufacturing establishments. Of course, it is hoped that the Modi Government’s
manufacturing push will equally benefit all parts of the country simultaneously,
including, and particularly those regions which are lagging behind at present.The stock markets have opened 1.5% up on Monday 20th October, at the beginning of Diwali week, to reflect a renewed optimism. With a relief rally, if not a revival in the global stock markets to back the resurgence in India, it is poised once again to reach new all-time highs. The market gurus and analysts are reasserting afresh that India is in a multi-year bull market.
To take advantage of this favourable wind, let us hope there are a slew of financial market reforms to create a state-of-the-art and international grade set of bourses, with the investment products to suit, so that greater amounts of FII can comfortably be accommodated.
There are international jitters to contend
with, now and going forward, particularly with bad economic performance
emerging from the last bastions of the EU, namely Germany and France, slowed
growth in China, as well as wobbly recovery in the US and Japan. And then there
is the paranoid fear of an Ebola epidemic.
The Chicago Board Options Exchange (CBOE)
VIX Index of Volatility, popularly known as the Fear Index, currently sits at
about 24.64, up 80% from the beginning of the year, and 50% up this month
alone. This level was last seen in 2012 when the Eurozone Debt Crisis was
particularly threatening. This may be an exaggeration, because the US markets
may well bottom out at these levels, but still, these indications, above the 20
year average of 20, are nothing to be sniffed at. Nevertheless, the VIX is
presently 80% below the shrieking panic that ensued after the collapse of Wall
Street in 2008.
The Indian VIX, based on Nifty Options, is
at 16.40 now, and the volatility here is not, as yet, particularly alarming,
moving in a band of 4 points in this and the last several months, but with an
upwards bias month on month, over the last six months. The idea, that with
improving economic parameters, that India can de-link from global trends is
impracticable; but when the worm turns, and the CBOE VIX calms down, to say, 10, as it was at in July
2014, India will get a better funds flow as the best performing Emerging Market
(EM).
Outside
of the headline news, the bringing in of Rajiv Mehrishi, the author of
Rajasthan reforms in recent months, as Finance Secretary, augurs well. The
arrival of Arvind Subramanian, thought to also be a strong reformer, as Chief
Economic Advisor, should also result in early interest rate cuts.
The time for rate cuts has already arrived,
thanks to lower inflation on the back of lower fuel prices, and the sooner the
Government moves on this the better. The light, administrative moves on the
Labour Laws are welcome, but they urgently need radical legislative
surgery.
There is now a sense of movement on the big
economic issues, neglected for years by the previous Government. While the Modi
Government has to be commended to have got cracking within five months of its
advent, can we hope to see much more, between now, the Winter Session of
Parliament, and the Annual Budget in February 2015? Gautam Mukherjee
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