A spanner in the bull-run

INDIAN investors are left with little choice. Investment in real estate is no longer lucrative. Safe and trusted savings schemes — Public Provident Fund (PPF), National Savings Certificate (NSC) and Kisan Vikas Patra (KVP) — have lost their sheen, due to a conscious effort by the government to make them unattractive by frequently reducing their interest rates. Bank deposits give meagre returns. Keeping money idle at home is risky, especially after the demonetisation nightmare. So, the booming stock market remains the sole attraction. The Sensex has been breaking its own record on a daily basis; registering an unprecedented 30 per cent jump in less than a year.

The bull-run seems to be largely unexplained as it is not commensurate with the country’s existing economic fundamentals. The informal sector, the backbone of the Indian economy, is in a wretched state because of demonetisation and the hasty implementation of GST. The agriculture sector fares even worse. Farmers are getting desperate as they are unable to recover their input costs. Food inflation is steadily rising; milk, eggs and vegetables are beyond the reach of the common man. Unemployment has aggravated due to a sharp decline in GDP growth, which is estimated around 6.5 per cent, a four-year low. A recent report of the World Economic Forum has put India at the 30th position in the global manufacturing index. 

These are reasons to worry any rational person. Banker Uday Kotak has raised the flag on behalf of the vulnerable small investors by pointing out that too much of money was flowing into too few stocks. This, he has warned, poses the risk of a bubble that usually portends a stock market crash. Kotak’s concern has a basis: the market watchdog Sebi has been unable to implement its directive asking listed companies to disclose their debt and defaults. It is now knocking the doors of the PMO. The government needs to heed Kotak’s concerns as the life-time savings of millions of small investors could be at stake. The government bears a heavier responsibility especially after it made investment in secured instruments such as the PPF and the KVP unattractive.