Unlock and Stimuli...

 Compared to the US and other major economies the INDIAn policy makers have been little conservative in bolstering the economic growth that is a key variable for the investment decisions…

 

INDIA has a supply side induced inflation, lower borrowing rate could help reinforce lower prices due to lower demand... Higher supply, productivity, competitiveness and lower prices could increase demand and price expectations... Demand is low due to unemployment which could be increased through lower borrowing cost and higher investment... Economy is past the lockdown mostly both demand and supply would increase which could help maintain financial stability...

 

Unlike the inventory market, in the stock market people's average costs and prices vary significantly, they buy and sell continuously at different costs and prices, they buy low and sell high. in this if they are able to maintain the average cost lowest during their time horizon or frame they would be winners... Lowest average cost help you sell when you need; it is true for short-medium and long runs...

 

INDIA further needs to liberalise FDIs and FPIs or its capital account and protect (full)-employment by allowing only raw materials instead of finished goods... Especially in PSBs which are sitting on loads of NPAs and interest rate transmission and on their own growth, lower market interest rates could boost credit growth... During booms they (banks) hike which lowers demand and price expectations ... during bust they lower borrowing cost which increases price expectations and recovery... Low stable interest rates are simple and easy rule for financial stability... How INDIA could compete with nations that have low interest rates which negatively affect its productivity...

 

Protecting jobs for the domestic economy is important, by liberalising the capital account and allowing imports that increase competitiveness and productivity of the economy and increase real wages and real domestic exchange rate...

 

Without a good unemployment insurance system that is important for social security INDIA could not afford flexible labour laws, it would be a hit to demand... A major reform would be setup INDIAN Labour Organisation to protect employment and demand and real wages in the economy, it could ensure higher real wages and demand in the Economy... If the Govt provides security from inflation, in the form of higher dearness allowance and real wages and incomes and shares the goal of price level and Financial Stability with the RBI to achieve low and stable interest rates would help achieve full employment and growth...

 

Higher money supply means more interest rate cut transmission which could mean lower market interest rates... LTRO by the RBI of 1 lkh Cr is an equivalent of the quantitative easing in the US, but not in the magnitude...

 

If the industry pass on the lower borrowing cost, wages and taxes to the consumers they would be able to gain margins once again the growth bounce back they may adjust prices according the demand, during low demand lower price may help increase the scale and profits and during higher demand they could increase prices again... This time we need to increase demand by lowering the prices... Lower prices would help increase demand and price expectations...

 

In this unprecedented situation deficit monetisation seems plausible and feasible if it improves the supply side and lowers unemployment, it would have the stabilising effect on prices (interest rate, wages and exchange rate) and finance and investment and expectations and growth...

 

Lack of irrigation and farmers’ plight, Congress owe a lot answering... Farmers of Punjab and Haryana are rich compared to the other regions like UP and Bihar where the majority hold less than 1.5 hectare there is so much inequality in the Farmer fraternity... Poor farmers must be united inorder to gain some bargaining power when livelihood dependent on agriculture are slowly losing... The Govt may help set up Farm Unions...

 

Still more than 60% population lives in rural areas and about the same are dependent on agriculture and MGNREA which has received most of the stimuli, and has been devoid of lockdown and gained on higher prices and more activity... Congress won back to back elections riding the employment guarantee in rural areas... and BJP lost seats in rural areas during past elections...

 

Low Prices Vs High Prices and Spending...

 People’s expectations about prices reinforce prices and spending, higher price expectations could increase investment and consumption demand and supply on hold, given people are employed and have money which could further reinforce higher prices through higher spending. Similarly, lower price expectations increase supply and hold on demand which could further reinforce lower prices through higher supply, given people have money. 

Prices affect demand and supply in the sameway demand and supply affect prices, though we have demand and supply side models, but prices do help manage demand and supply, in the stock market prices and expectations are important determining demand-bid and supply-offer which further reinforce prices and volatility, if demand is higher than supply, price expectation increase and when supply is higher than demand price expectations decrease which further increase volatility.

People know little about Economics and Business... It is profitable both ways when prices fall and when they increase too, though money (supply) is a must, either through external devaluation or internal devaluation... Higher inflation or ext. devaluation increase spending and lower inflation or internal devaluation too... Higher inflation means supply side would improve because higher prices increase supply, wages and profits and lower prices means demand would increase, wages and profits... But money supply is very important... If you have to increase demand you need money, if you have to increase supply you need money, too...

Higher inflation means lower real interest rate good for borrowing.... if nominal interest rate remains stable... lower real wages too, lower domestic exchange rate too... Higher competitiveness...

Relative to other countries INDIA is doing quite fine.... Not even 1% of the population is affected by corona.... death rate is very low, recovery rate is high... We should point at China for GDP reduction... INDIA would recover fast... The worst is behind us...

Disruption and correction in growth and prices are oppourtunities to invest or buy at low prices and supply or sell at high prices... Generally, low growth coincides with low prices and high growth with high prices... There is a positive relationship between prices and economic growth...

In the absence of any significant demand stimulus due to limited fiscal space and inflation expectations even in the face of structural unemployment, the RBI may accelerate the pace bond buying or some form of quantitative easing to recapitalise banks to tackle to problem of NPAs and credit growth could help faster recovery... It would also lower interest payment by the Govt on public debt... It would kick off employment and investment or demand and supply, both when real rates are negative... and labour is abundant and cheap... Rich and aging economies have pumped too much money, to increase demand, though INDIA needs a big supply side stimulus to expand recovery on a faster note... This could help reduce unemployment and the need for a demand stimulus...

Money moves from pricier markets to cheaper markets, especially in FPIs/debt... If Govt spending is productive and inflation stabilising a lot of foreign money would pour in... INDIA is a cheap financial market, a lot of value investing is likely to happen... Lower interest rates are good for the debt and stock market... Foreign investors rarely invest on Fds or fixed income class because that is illiquid and hard to withdraw that could help further lower short run rates...

Foreign capital would pourin, though they would chase corrections, at any significant dip it is a buy oppourtunity... Though INDIA has been slow in increasing money supply to the productive investment, but US is easing on a high note which would chase higher returns in INDIA, both debt and stocks due to higher prices expectations from a low base.... Higher price expectations in INDIA could bolster foreign capital inflows...

The INDIAN stock markets take cue from the US' market and the US' market also takes guidance from the INDIA market... It is like chicken and egg analogy... both, appreciation and correction... The US market would be range bound due to the US' elections and this could also affect the Sensex and BSE... Though, stock markets could see increase after the US elections... In between stock market in INDIA could still help gauge markets' performance in the US... foreign capital could also flowin... INDIA's young population and better immunity could help lower deaths due to cov19... INDIA economy could recover faster than the aging economics... INDIAN economy lockdown has bottomed out and we have observed a fast recovery, though employment has yet to reach precovid levels...

Pledging the company's shares to receive financial life line might be pursued... it could help companies to reduce average cost by increasing scale... Restructuring could further help...

A major reform would be to allow greater FDI in the PSBs... It would help recapitalise them...

Government may float unemployment benefit (according to market demand) and skill development bonds and open economy for the foreign investment... banking in INDIA is a cartel market... Higher foreign exchange and capital inflows would help maintain exchange rate... It would (bonds) would help boost productivity and competitiveness and demand... Foreign exchange is the rawest of the raw material, underscoring local sourcing would help increase domestic demand...

The Govt must launch a nationwide unemployment benefit system for the sake of social security...

APMC was scrapped to avoid the farmers exploitation in mandis because middle man chain could be cut to reduce cost if farmers sell directly to investor and consumers... If all the farmers unite under Famer Union, they could manage demand and supply and get higher returns like OPEC... If cartelisation of banks and oil industry are allowed agriculturists must also be allowed some bargaining power... Food for poor could remain subsidised... Had Congress brought Food Security on time we had not been pushed into slowdown and NPAs due to contractionary policies later and high food inflation... Too much money was pumped into the economy that resulted in higher demand with lower productivity and supply side mismangement...