First anniversary of Modi 2.0: Investors lose Rs 27L cr in equity wealth, ask is it worth investing

NEW DELHI: It’s May 30, the first anniversary of Modi 2.0.

It turned out to be such a challenging year for stock investors that they lost equity wealth worth Rs 27,00,000 crore on Dalal Street, accounting for 13.5 per cent of India’s GDP.

In numbers, that was 35 per cent more than the Rs 20,00,000 crore, or 10 per cent of GDP, that the government has doled out in monetary and fiscal stimulus to ease the Covid disruption in the economy.

Nine of every 10 stocks have logged negative returns during this period. Just 10 per cent of BSE-listed stocks could log a respectable double-digit return for the year!

The GDP growth, which was already lagging at a six-year low in the pre-covid 19 period, tumbled further to 3.1 per cent in fourth quarter, as the lockdown imposed to stop the spread of coronavirus had its early bearing.

GDP growth for FY20 turned out to be a poor 4.2 per cent, a 11-year low. Monthly PMI readings are at record lows, while factory output numbers are languishing and risk-free rates (read interest rates of bank fixed deposits) are falling, making investors wonder if anything is worth investing.

“What happened in last three months was unprecedented, and frankly India has its own limitations. But the slowing pace of growth till the December quarter was to an extent the result of the side-effects of the previous reforms, such as GST rollout, which took time to show results" said Umesh Shah, Head of Research at Samco Securities.

Shah said history of market crashes in last 100 years globally suggests the Indian market had an ideal environment to correct, as only a few stocks were outperforming, thanks to the herd mentality of funds, both domestic and foreign.

So why was everyone pessimistic about the 90 per cent of the market?

“In a way, the economy was not firing from all four cylinders, and was still going through consolidation post some of the big reforms,” Shah said.

To give a lift to India Inc, Finance Minister Nirmala Sitharaman cut corporate tax rate to 22 per cent without incentives from 30 per cent earlier, and 15 per cent for new manufacturing entities.

The announcement had a positive impact on domestic stock indices, which hit a record highs in January, only to encounter the Covid-19 uncertainty soon after.

Economists are warning of never-seen-before kind of data points ahead, but marketmen look insusceptible. Their refrain: “Markets discount future earnings.”

Analysts admit FY21 would be a washout year, but find prevailing stock prices interesting. These could yield strong returns three years down the line.

Data showed, market value of all BSE-listed stocks tumbled 17.7 per cent to Rs 127.06 lakh crore on Friday compared with Rs 154.44 lakh crore on May 30, 2019, the day Prime Minister Narendra Modi took oath for a second term in office.

Out of a total of 2,684 actively-traded stocks, 2,308 have given negative returns while 17 delivered zilch. Only 359 stocks, 13 per cent of the entire BSE universe, reported positive returns; 269 of them (just 10 per cent of BSE universe) reported over 10 per cent gains.

Deepak Jasani of HDFC Securities, who gave the Modi 2.0’s first year seven marks out of 10, said one must not take market-capitalisation as the only indicator to judge the government performance. “The market performance is not just a function of economic policies, but also regulations, disruptions and global developments, among others,” he said.

Jasani said stocks which fell strongly of late were the ones where the companies have high debt levels or were facing concerns over governance or capital allocation policies, and also where the businesses faced huge disruptions.

“You can't blame the government for everything,” he said.

Data showed much of this market-cap loss came after January, when the coronavirus crisis knocked India’s doors. BSE’s market-cap stood at Rs 156 lakh crore at the end of January.

Jasani said a cleanup process has been under way since 2016 to unshackle the businesses. This process could last another 1-2 years, and some businesses may adapt to the new reality sooner than later. “Then, we could see sustainable growth without creating stress on banks or fiscal policies,” he said.

In a note to the citizens of the country, Prime Minister Modi on Saturday said while India has the economic resources and state-of-the-art healthcare systems, it is besieged with problems amid a vast population and limited resources.

“At such a time, there is also a widespread debate on how the economies of various countries, including India’s, will recover. However, given the way India has surprised the world with its unity and resolve in the fight against Covid-19, there is a firm belief that we will also set an example in economic revival. In the economic domain, 130 crore Indians can not only surprise the world, but also inspire it,” he said.

Prashant Jain, one of India’s best money managers, says he has written off FY21 and is looking beyond.

“Investors should not draw any conclusion looking at the performance of the market or economy this year, which is an outlier. The ongoing correction is one of the best times to invest in Indian stocks,” says he.

This, Jain says, is also the time to double your investment in systematic investment plans (SIPs) of mutual funds. The good news, he said, is that the external side of India looks strong. Also, he says, India is uniquely placed among emerging markets.