Where is the panic button?

Blog | Outlook

The Nifty, for the first time in 4 months, fell below 8000 yesterday. In normal times, this would not prompt for such a fearful title. But in this case, panic might be an understatement.

These are not normal times we are living in.

The headline grabbing news of PM Modi’s demonetization program swept the nation this week. Each and every citizen has been affected. It was such a brazen move that, as a collective public, we are still not exactly sure what to make out of the whole situation.

Massive queues at ATMs. Wondering daily whether the general euphoria that swept through the nation was premature. Is it possible that the entire operation will become a huge disaster? Rating firms are predicting a drop in GDP due to demonetization. We’re not just talking about a small GDP drop either.

Several news organisations quoted an Ambit Capital report that predicts that GDP growth will most likely decelerate from 6.4 percent in the first half of this fiscal to 0.5 percent in the second half—with a distinct possibility of GDP growth contracting in the third quarter.

This is massive news. A 6.5% swing is unprecedented. Add to that the fact that we have a Prime Minister who is imploring the nation to wait “50 days,” suggesting that the country can punish the government if it does not meet the 50-day quota.

When was the last time we have faced such a wide ranging societal situation that affects every demographic?

And that is what makes us wonder if that button with a big P needs to be pressed. But wait, there’s more drama to incorporate into this truly, one-of-a-kind situation.

The United States just voted in their next President, and he’s an enigma amongst enigmas. A man who basically rose to power through Twitter, bullying, sexism, and saying literally anything to get votes—somehow, someway, made his way into the most powerful seat in the world! Donald Trump, the billionaire magnate with zero political experience, is now the leader of the most powerful country in the world. A large majority of America is simply in disbelief that Trump is the next President of the United States.

With demonetization and the rise of perhaps one of the most controversial World Leaders in decades, India is in a precarious situation. It is impossible to tell the exact ripple effect of all this news. So far, the situation doesn’t seem to be out of control. The VIX, which measures volatility, has hovered up in November, but for the most part has not jumped up out of control. This is good news, but might also indicate that investors are simply waiting to see how demonetization impacts the economy.

In the past month, the markets have fallen almost 10%. PM Modi did announce a rate cut due to higher deposits at banks; this should have rallied the markets, but did not.

So the real question comes down to this: what will it take for the markets to climb back up? Do you think the markets will keep tanking? Or do you think that, in due time, the markets will rally? How important is the 50 day benchmark that the Prime Minister has provided? Finally, how does Donald Trump’s ascent to Presidency affect the entire situation?

We welcome your comments and inputs 🙂

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