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The Big Picture - Rupee weakens, stock markets crash: Crisis or an opportunity?

This week stock markets were in tumble, sensex below 24000 points-lowest ever since May 2014 since the new government took over. Rupee crashed to 68 per dollar, and exports have declined. Let’s look at some of the issues associated with recent trends in the stock market and analyse whether it is an opportunity or crisis?

How it happened?

• On an international front this is clearly an impact of Chinese devaluation on global markets. Although the timing and extent of devaluation is quite unexpected, considering the impact it made to other emerging economies, its effect on India is well inside the permissible limit.
• Added to this, tightening of American monetary policy is also one of the important reasons for market to behave irrationally since last week.
• On domestic front slowing down of the reform process, Exports taking hit, low industrial growth, decreased rural wages are some of the important reasons for slowing down of markets.

Is it an opportunity? Or something to worry?

• Many scholars say it’s an opportunity! They believe it’s a god given opportunity to invest in sectors which government has failed to invest it in before like education, health, social sectors, infrastructure and Railways.
• The investment to GDP ratio is falling dramatically from 2009 (38 %) to 2015(20 %).Effective investments that will yield results by the way of roads, irrigation, village infrastructure should be created.
• It is an opportunity to clean up PSU banks whose performance has been dismal in stock markets.
• It is a high time to clean up energy markets by reducing the subsidies,rationalising excise duties, cess etc.
• To create effective demand ,Issues related to percolation of MGNREGA funds to rural areas needs to be addressed.
• On industry side government needs to push sectors like shipping, roadways, infrastructure in order to make use of the current situation to turn India in to a strong manufacturing hub.