Blasé Capital SEN-SUCKED

What is happening out there on the Indian stock exchanges? On February 1, the budget day, investors get spooked, and the Sensex plummets by more than 1,800 points. On February 2, the downfall continues in the first part of the trading session, and then the index zooms. It closes the day with a huge gain of nearly 1,000 points. Half the recovery is done. On the night (or dawn) of February 3, as the US president, Donald Trump, announces the ‘Uncle-of-all-deals’ between India and the US, the investors are full of energy in the morning. Over the trading day, the Sensex booms by 2,000 points. Such daily gyrations, and volatility, just because the investors love or hate certain events, or decisions, is remarkable, especially for a so-called mature market. It shows the sensitivity, nerves, and jitters within the investor community, which is rattled and cattle-d towards buying, and selling, without any idea of what is going to happen tomorrow.

For example, let us consider what happened on Tuesday. Of course, there was energy and enthusiasm, when a president and prime minister announced the long-awaited India-US deal. For months, investors had waited with baited breath for this deal. According to an analyst, India’s growth rate will rise because of higher exports, and corporate earnings will show signs of higher revival because of the pact. But, one second, what about higher imports from America, which may hurt the domestic producers in some sectors, and ratchet up the overall trade deficit. The agreement is not a one-sided one, which will help exports. It will hurt a few firms. In addition, if this is the stock market response to the India-US deal, why did the investors not react similarly, when the ‘Mother-of-all-deals’ was signed with the European Union? The latter was in the works for decades, and includes dozens of nations.

In fact, in retrospect, this year’s budget gave hints that the India-US deal may be announced soon, and it was within two days. For example, the budget reduced the customs duties on imports of civilian planes, and seaplanes, as well for repairs and maintenance equipment. On February 1, the feeling was that the move will help the Gautam Adani Group, which recently inked an agreement with a Brazilian maker. Now, we know better, as US officials indicate that the bilateral pact will lead to higher American imports in the aviation sector. Similarly, after India introduced a new nuclear power law, which favoured the foreign equipment supplier. In the budget speech, Finance Minister Nirmala Sitharaman said, “It is proposed to provide basic customs duty exemption to the import of goods required for Nuclear Power Projects till the year 2035, and expand it for all nuclear plants irrespective of their capacity.” The US officials indicate that nuclear power will be another area of enhanced American exports to India.

In other ways too, Sitharaman’s budget preempted the India-US deal, and accommodated the India-EU one. The two deals will result in both high exports, and possibly higher imports. Hence, there was a need to streamline the customs systems and processes. The budget does it amicably. “India’s role and share in global trade is poised for a major leap, in line with our ambition and journey towards ‘Viksit Bharat.’ In this regard, I propose many measures for custom processes to have minimal intervention for smoother and faster movement of goods, and greater certainty to the trade,” she said. Henceforth, regular importers with “trusted longstanding supply chains will be recognised in the risk system, so that need for verification of their cargo every time can be minimised.” As Sitharaman said, explained, “The Customs warehousing framework will be transformed into a warehouse operator-centric system with self-declarations, electronic tracking, and risk-based audit. These reforms will move away from… officer-dependent approvals, and reduce transaction delays, and compliance costs.”

Probably, this explains why the pro-regime supporters were not affected by the slump in the Sensex on February 1. At least the top political bosses possibly knew about the forthcoming India-US trade deal. One is not convinced that all it took for Trump and Modi to shake hands was a phone call, and a “desire” by the latter leader, as Trump put it out on his social media post, to ink it. The two must have known that something would happen soon, if not on the night of February 3, then maybe on February 4 or 5, but within a few days. Maybe the two leaders were told that a phone call would resolve the issues. If this is true, those who sold on February 1 were losers, and those who purchased on February 1 and 2 (even at higher prices) were the winners. But did the winners know about future events, guess it, took risks, or were asked, ordered, and urged to buy? Such questions invariably crop up when the so-called sudden and unexpected events, when dissected and analysed, seem pre-planned, and in the works. But despite whatever the regulators may claim, bizarre are the ways of stock movements, which are influenced by human rationality and fundamentals, as well as irrational and unexpected exuberance.