By Kunal Bose
Some notable exceptions besides, equity shares in almost all sectors from IT to banking/financial services to FMCG to oil and gas have found their values eroded in varying degrees since the US and Israel combine began its assault on Iranian military and economic assets and top political leadership on February 28. This could not have been otherwise since the unwarranted conflict, which is yet to see its resolution, basically for the intransigence of the administrations led by President Donald Trump and prime minister Benjamin Netanyahu, plunged the world in a serious geopolitical crisis.
Against this background, an intermittent contest between bulls and bears is only to be expected with share price indexes on BSE and NSE moving in either direction steeply on days. Today, portfolios of almost all individual investors, who bought shares ahead of the war breakout as long-term investment are in the red. The worst sufferers in the meltdown have been the ones who bought IT shares such as TCS, Infosys and Wipro and FMCG shares, particularly of ITC in better times.
The overbearing gloom cast by high energy prices, supply chain disruptions and a difficult trade outlook notwithstanding industry and commerce minister Piyush Goyal claiming major success in signing FTAs in the last three and a half years and holding the prospect of executing the first tranche of interim trade agreement with the US by mid-July is the reason why money in the stock market is lost for long-term investors and those prone to playing sweepstakes. Market for stock, commodity or currency, everywhere in the world remains highly sensitive to any major economic or political news, positive or adverse.
The weekend saw the union government and the Reserve Bank rolling out a raft of measures, including tax exemption on interest and capital gains on government securities for foreign portfolio investors (FPI), widening the list of securities to enable foreigners to invest and raising of investment limits for NRIs, OCIs and all persons resident outside India in equity instruments traded without SEBI registration that should increase the inflow of foreign investment and also strengthen the rupee. Expectedly, following the government and RBI announcement, rupee appreciation vis a vis US dollar was 84 paise, the largest in two months, at Rs94.95.
A consensus continues to elude policymakers, central bankers and economists as to whether there should be official intervention to shore up the value of rupee and if at all at what stage by selling dollar from reserves, which now amount to around $685 billion. As it would happen, the currency value has remained an emotive issue with the general public and wrongly though, the government of the day comes for criticism if rupee continues to depreciate. What is overlooked, exporters lose competitiveness in overseas markets if the currency is pegged higher than its worth.
Take the case of China. Even after sustained pressure from the US and prodding by IMF, the Chinese yuan remains undervalued, anything between 15 and 25 per cent, depending on the economic model being used. The fact remains that the world’s second largest economy has consistently run trade and external surpluses of over $1 trillion. A situation like that obtaining in a free economy and the central bank there not pressured by the government, the currency value would be up. No matter how unhappy is the US, Beijing is determined to help exporters retain competitive advantage in the world market by artificially keeping yuan value low.
Whatever that is, Indian announcements directed at foreign investors and Indian residents abroad should pep up market sentiment as foreign currency inflows are set to rise. At the same time investors and brokers have reasons to be cautious following RBI lowering its GDP (gross domestic product) forecast for the 2026-27 financial year to 6.6 per cent from the earlier April estimated 6.9 per cent. High energy and commodity prices, West Asia crisis triggered supply disruptions and gloomy monsoon outlook must have weighed on RBI to trim growth forecast.
The headwinds that the Indian stock market is facing due to geopolitical crisis, elevated energy costs, tariff uncertainties, trade restrictions and wobbling of supply chains obtain in the rest of the world too. But these factors have much to do with clouding the earning prospects of Indian companies broadly and causing share prices to fall almost across the board. What also has not helped is continued selling of shares of Indian companies by FPI. Outflows on their account till 3rd June at Rs2.6 lakh crore far exceeded for the whole of last year’s Rs.1.7 lakh crore. The saving grace is the country has a strong domestic investor base, which not many countries can boast. Thanks to sustained campaign by Association of Mutual Funds in India (AMFI) and also by its member constituents, the equity cult continues to grow.
But why is this more recent disinterest in Indian equities among foreign investors? Analysts are in consensus that valuations in India are quite high compared to many other markets. South Korea and Taiwan are now the preferred markets for foreign investors where comparatively good valuations are available. Moreover, the two Far Eastern countries are investing heavily in AI with companies there embracing it. Foreign investors will always be looking at valuation arbitrage. However, as global CEO of Citi Jane Fraser has told the Economic Times: “The long term India story remains intact. Investors haven’t left India, they’re just waiting for some of the cyclical and other factors to play out. What we’re seeing right now is not a structural shift away from India, but a pause, as investors reassess global conditions – whether that’s valuations, geopolitical risks or monetary policy. But fundamentally, India continues to stand out… The story is intact.” Hopefully, the Jane Fraser message will reach the Indian market. (IPA Service)
