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Market Outlook: Come September Welcomes Kangiten

Fintech, NBFCs and banks should not compete but work together, for instance through the co-origination of loans.

Photo Credit : PTI


Stock markets in India gather momentum and marches. Currently, NSE Nifty index is quoted around 11,000 and BSE Sensex is pegged at 37,000 levels, Nifty at 10,583 and BSE Sensex at 35,287 level blinks orange that is caution has to be exercised. Nonetheless, demand and supply are on balance today. The pre-budget level defines a high of 2019 which seems distant. Whereas lows of January look nearby.  Wait and watch approach seems the best policy for the month. Quarterly results shall provide clarity and direction for the coming months. 

FIIs has been net sellers whereas DIIs countered by continuous buying value at all levels. The currency has depreciated; rupee has been one of the worst-performing currencies in Asia.  While the economy is grappled by gloom as global trade fear grips. Despite GDP and inflations face multi-year lows, yellow metal buckles the trend. Gold glitters as silver shimmers through stock market jitters. 

Seed Of Crisis Sown
The global financial crisis of 2008 stunted and stalled economic growth worldwide. In spite of the global tremors, the Indian corporates were on expansion mode and borrowings continued. Both banks andfinancial Institution delinquencies and overconfidence to ride the seismic waves of the global financial crisis led to continuing existing practices of over funding. Banks continued financing inventory pile and servicing the debt of unutilised capacity. Instead of retrieving money or encashing the collaterals, lenders disregarded the economic rationale and due diligence but continued leveraging. This created more NPAs. Banks andfinancial institution overextended credit lines before and during the turmoil but post the storm, the same lines are not available. This has led to a liquidity crunch and disruption of industry output.

Valiant Steps By The Government
Although the government has been taking proactive steps such as Bank recapitalization and insolvency andbankruptcy code. Especially the latter, which seems to be an effective and time-bound mechanism for dealing with the problem of ever-escalating non-performing assets (NPAs) and providing our banking system with some much-needed respite. 

Further, the policymakers have lent an ear to the industry by withdrawing higher tax surcharge on FPI and domestic investor, incentivising the housing loans by reduction of interest rates amongst others. The government is also proposing GST rate cut in the auto industry to give a much-needed breather to the auto and auto ancillary sector. This realignment of policy framework in consultation with the industry players strongly displays a coordinated effort to navigate the storm and providing a blueprint for new industry standards. 

Macro View
Stock markets capture the wisdom of crowd which is cemented at current levels of 11,000 Nifty index. Many sectors are trading at a discount and there has been a free fall in valuations. For instance, capital good sectors price to earning is at discount presently. The investor sentiments remain languid and the macroeconomic indicators show no signs of recovery even though a spate of measures taken by the government. 

While part of the problem is the environment, the other part has not been addressed. Large traditional industries for the longest time have required house cleaning in the form of global industry practices, strengthening infrastructure and creating digital eco-system. The Government has been an advocate of these measures howsoever the pace of incorporation has either left the enterprises in a lurch or behind their global peers. In the day and age of reducing redundancies and increasing focus on automation calls for structural reforms which cannot be substituted by minor policy tinkering. Yesteryears concepts like owning houses and vehicles are replaced by Airbnbs and Uber. Consumer choice and behavioural patterns in the dot-com economy is volatile. For factoring constant changes, a dynamic model for lending business is required. The radical industry disruptors cannot be viewed under the same lens. The credit analysis and factors for determining credit should be in tune with the global practices and further regard the architecture to resolve existing business problems. 

Moreover, Fintech, NBFCs and banks should not compete but work together, for instance through the co-origination of loans. New rules and framework in place can boost lender confidence and it will be a win-win. Like any company or nation, financing is requisite. Credit lines should be extended to support India’sgrowth story, but this time perhaps more diligently. As India moves towards becoming a $5 trillion economy by 2024, so sow, soto reap.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Market Outlook

Bhuvana Ravi

The author is director of Abhay Capital Services Private Ltd

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