Global uncertainties over rising interest rates, jittery noises of LS elections surpass the RBI’s `2.10 lakh crore dividend boons, pushing down the Sensex

From its highest 76,010 in the beginning of the week it plunged to 73,866 as the BSE and Nifty indices close in the last six sessions. The RBI forecast of 7 percent growth too has not boosted the spirits as the equity market has been pining for a higher growth. However, RBI claims that even at 7 percent the country would be one of the fastest growing economies in the financial year 2025. The Asian Development Bank and Fitch also concur.  But IMF, S&P and Morgan Stanley put it at 6.8 percent and World Bank, Moody's and Deloitte put it at 6.6 percent.

The RBI has set a target of inflation at 4.5 percent though the central bank repeatedly has said that for the last ten years average inflation hovered over 5.5 percent. The central bank also notes a slowdown in the last quarter of 2023-24. Global markets remained under pressure due to rising bond yields and denting hopes of a rate cut. A major concern is the spike in US bond yields pushing the 10-year yield above 4.6 per cent. Some of the top companies that raised dollar bonds include India Bulls HF-$ 350 million; IRB Infra - $ 540 million; Adani Green Energy - $ 409 million and Sriram Finance - $ 750 million, as per Bloomberg.  The bond market can trigger continuation of the FII selling which will depress the prices of large stocks further. Volatility is likely to continue the next week as well due to the political uncertainty and global developments. This has been a phenomenon since the elections began in April and now it is spiking to 24.8 - a more than two-year high on the benchmark for volatility India VIX. Except for occasional rises, the stocks remained stagnant.

In different phases the losses to investors have been heavy. In the present melee, foreign funds were major sellers at Rs 3,050 crore. In earlier, trading also the FPIs sold stocks worth Rs 27,500 crore. The domestic funds were net buyers at Rs 53,600 crore. It means largely the PSU funds were the buyers. This has a risk to mutual fund investors. During the weekend the BSE sensex had a minor rise of 0.18 percent or 132.44 points and the NSE Nifty 50 closed 61.75 points or 0.27% higher. These minor movements are not capable of recovering the losses.

It is found that some of the major corporates like the Tata Steel's profit slides 65 percent to Rs 555 crore down from Rs 1566 crore. It suffered a loss of Rs 594 crore. Of the 12 startups looking to launch IPOs in 2024, eight have incurred a cumulative loss of Rs 8,000 crore, including Swiggy, and Ola Electric.

A prolonged election has seen investor confidence being hit. Foreign portfolio investors preferred to unload more than buying. Election is a democratic necessity. The rulers, however, need to see it beyond political compulsions. Ideally, an election could be held in far fewer phases stretched to not more than a fortnight. Most of the southern states had a one-day poll schedule. Only in states of northern and eastern India had multi-phase polls. Even Tripura, one of the tiniest states with two seats, witnessed polls being held in two phases.

Longer an election stretches, the administrative cost multiplies. All political parties should sit together with the Election Commission of India (ECI) to discuss how the modalities could be simplified to hold elections in the shortest possible time to take care of administrative, economic and trading activities. Apart, it also needs to decide whether announcing dividends by organisations like RBI or other PSUs could be announced during the elections. Such moves tilt the balance.

Profit booking at higher levels in the stock market has been a synonym to political or economic uncertainties. This needs to be avoided to the maximum. Polls must not come in the way of policy decisions either at the government level or corporate and other institutional functioning.

Election schedules are not a matter of mere political management. Polls are held to improve systems. If these affect any aspect of the governance, this must be corrected for all times and should be part of the standard operating procedures of the ECI.

Overall, there are risks to the economy, RBI says in its annual report. It has asked banks to address trading norms, banking book risks, and diversify deposit sources to mitigate risks associated with interest rate fluctuations. This variation has also its impact on the stock markets. Its decision to review priority sector lending guidelines and work towards formulating norms for the National Strategy fir Financial Inclusion up to 2030 could have wider impact on trading and businesses.

The RBI functioning is also being discussed. Its dividend payment of Rs 2.10 lakh crore is linked to 17 percent rise in income, 56 percent drop in expenses due to a much lower transfer to contingency provisions during 2023-24. As against Rs 1.3 lakh crore in 2022-23, only Rs 42,819 crore was transferred to the contingency fund in 2023-24.

Another matter that has drawn attention is the domestic assets made up 23.3 percent against 76.7 percent in foreign currency assets, including gold deposits and gold held in the country as also loans and advances to financial institutions outside India. The RBI holds, it annual reports says, 822.1 metric tonnes of gold. The value of gold held as asset increased by 16.9 percent to Rs 1,64,604.9 crore on March 31, 2023.  It also mentions heavy liabilities other than deposits and notes issued at 92.57 percent.

The recent trend in US inflation data could make an interest rate cut this year. This could cause further flight of capital from India even as rupee continues to fall against the dollar and further fall in the equities are not ruled out. The market awaits new policy formulations. Till such time the volatility is likely to continue. It would require innovative approach to the financial and budgetary policies to boost the overall market so that investors from across the globe are tempted to put their funds in Indian scrip and other instruments. The new government has to trudge cautiously and intelligently to rev up the contours of the market and economy.

(The author is a senior journalist; views are personal)