Adversity of pandemic opens an opportunity in capital market

By Vivek Pattanayak*

Pandemic has affected the global economy as a result IMF has predicted a global  contraction of GDP by 4.9% or more, WTO predicts merchandise trade to reduce by 39%, ICAO estimates fall in passenger traffic by 59% and UNWTO predicts tourist revenue to go down by trillion dollars. If this is the impact on the global economy, India cannot escape its pernicious effect being interconnected with the rest of the world more particularly with unyielding momentum of Covid19 in the country. With no vaccine  still in sight and uncertainty regarding its availability in future and WHO’s warning that the virus would remain for a long period, one tends to think that people must learn to live with this uneasy situation and plan their life, activities, trade and business.

India’s economy, as it is, before the onset of pandemic was limping with reduced growth rate, high fiscal deficit, trade deficit, low manufacturing and low power consumption and high NPAs in the banks and sickness among the financial institutions, and more particularly very high level of unemployment. No wonder it would be severely affected by this Black Swan event.

In this context, it is extremely relevant to explore what strategies should be explored for bringing back economic activities. In order to have a growth rate of 8% to 8.5% to catch-up with the lost ground, it must create non-agricultural jobs to the tune of 90 million by 2030 according to McKinsey Global Institute. Every opportunity must, therefore, be exploited to create jobs and employment opportunity whether self-employment, Start Up, and micro, small, medium, and big business.

If one follows the stock market one can see remarkable vibrancy after initial crash. This is true across the developed and emerging markets. Many wonder why stock market is booming when the economy is contracting. This is an unusual situation. In the first place it has happened in the past in 1992, 2008 and 2011 demonstrating disconnect between growth of economy and stock market. Secondly, when the interest rate is low investors will enter stock market. Pension funds, sovereign wealth funds and central banks must park their money where it is safe, and return is more.

What opportunity the market gives for creation of jobs is worth understanding. Creation of wealth and its distribution has been the pursuit of human civilization for centuries more so during the modern times. Income gives rise to savings after expenditure. In India, the household savings which constitutes 30% is much higher than savings rate in the European and North American countries. The people in India,however, generally invest their surplus money in gold, silver, land and real estate. Infusion of funds to capital market from savings is exceptionally low. Retail investment was only around 1% or less until recently as against 60 % to 75 % in Europe and North America. Capital market plays a big role in recycling of money generated through savings for productive purpose like industry, business and trade which contribute to the growth of economy.

Financial literacy is not a high priority in India as a result surplus money goes to traditional area like precious metal or fixed deposits in banks and very often to  investment in fraudulent Ponzi scheme like spurious chit funds leading to scams etc. Many in the rural India and some in the urban centres are pushed to put their savings on these unreliable schemes with a mendacious promise of high return.

In this context knowledge of financial market, capital market, stock-market, bond market, money market, bullion market and currency market and commodity market become especially important. Trading in stock not only creates employment opportunity it helps in wealth creation.

Lockdown has shown that stock market is not only booming but there is remarkable entry of new participants more particularly young. Chairman of SEBI has made this observation for the Indian stock market. It is equally true of US market. Almost one million new entrants are seen there while in India few lacs have gone into retail market. Increase in dematerialized accounts in last couple of months reflect the vibrancy. Dematerialization has begun since many years with CDSL and NSDL playing significant role in encouraging many depository participants across the country. Before pandemic for long years number of dematerialized accounts were showing stagnancy in growth or high degree of non-operational accounts. With lockdown and falling interest rate of banks in savings accounts and fixed deposits, people particularly young looking for diversification of investment have entered this unchartered ocean. The young computer savvy people staying at home are getting into stock market either directly or through intermediaries. This is an extremely healthy sign. Adversity has created an opportunity.

Education on financial market, capital market, stock market, bond market, currency market, and even commodity market would go a long way to increase financial literacy. Schools, colleges, and universities taking advantage of newly announced educational policy can introduce well designed courses using technique of augmented reality during this lockdown period. Apart from being self-employed, many would gather sufficient professional knowledge to join brokerage firms or take franchise or even get into other related activities.

Time has perhaps come to India where the traditional opprobrium towards the stock trading received in the past particularly in the conservative middle-class families must be abjured. Affluent and well to do families should encourage their children get professional knowledge, and those who can afford to give initial capital or seed money must do so to initiate them into capital market. The Indian stock market is very well developed having started since the middle of 19th century although their effect has not sufficiently felt across the country. No longer the archaic outcry system prevails since advent of computerization, internet and advancement of Information Communication Technology. Trading is done online and can be comfortably done from home. Over last two decades the stock markets have been dealing with diversified products like Derivatives, Futures, Options and Mutual Funds following Systematic Investment Plan (SIP) etc. Frequently stock market announces Initial Public Offerings which give a window to newcomers to buy stock at affordable price. With acquisition of experience in stock trading they can move to currency market. It is expected that country may in near future begin with vibrant bond market in public domain which would further enhance the scope for young people to develop and fine tune their expertise.

 

 

*The author is a former bureaucrat and held important positions in aviation and power regulatory body. He can be  reached through e-mail at [email protected]

 

DISCLAIMER: The views expressed in the article are solely those of the author and do not in any way represent the views of  Sambad English.

 

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