On the 29th of September, the student-economists of the Meghnad Desai Academy had the privilege of meeting with Dr. Aditya Srinivas, Chief Economist of the Bombay Stock Exchange Brokers’ Forum. For 60 minutes, he spoke passionately on a swathe of issues – from the psychology of investors, to the outlook of the Indian economy and larger global economic challenges.
Dr.Srinivas began with, “Sentiment drives liquidity and liquidity drives the market”, a powerful statement that perfectly captures the essence of the psychology of investors and their tremendous impact on the stability of financial markets, whether this be the prospect of violent conflict, uncertainty in election outcomes or the promise of reform. He affirmed that it is important to maintain a long term view as well, and not simply be swayed by the crowd.
Another important aspect that came to light was the role that foreign investors play in India’s markets. The combined holdings of the FIIs stand at $328bn or 51% of the total market value, and have invested nearly INR 9000cr since January this year alone. This peculiar market structure underlies an intriguing dichotomy at the heart of India’s economic ups and downs. In times of lack lustre growth in major economies– whether the 2007-08 Crisis when the markets plummeted by 1000+ points, the Eurozone Crisis or the Chinese slowdown, India’s markets have been negatively impacted due to capital flight. Contrastingly, the Indian economy’s GDP growth rates remained fairly consistent.
Shifting gears seamlessly to the real economy, Dr.Srinivas identified three major sources of resilience in the Indian economy even during times of global financial turmoil:
- Demographic dividend.
- Domestic Consumption and the size of the retail goods market: a large portion of demand is internal and there is significant scope for growth. Of India’s 24cr families, nearly 70% of these have an average monthly earning of less than INR 5000. This in turn is driving demand for locally sourced solutions.
- Savings rate: Stands at 27% in comparison to a global average of 21%, which drives capital formation.
With an encyclopaedic knowledge of the markets, Dr. Srinivas spoke at length regarding various indicators such as unemployment rates, NPAs and debt to GDP ratios particularly in the four major economies of the USA, EU, Japan and China. This analysis revealed that India had certain advantages such as low levels of India’s Debt to GDP ratio (57%) that could spur a rapid ascent in the years to come.
Dr. Srinivas, in the course of his extensive travels displayed an acute awareness of the difficulties that face the sea of humanity that resides in India’s villages today – poor education, lack of healthcare facilities, over-reliance on monsoons and inadequate job opportunities. Addressing the last of these, he stressed that India needs to create a mammoth 1.5cr jobs on an annual basis. To combat ever increasing automation, his “vision of development” professes the establishment of labour intensive industries. Other challenges that Dr.Srinivas touched upon included the need to push flagship projects such as ‘Skill India’, ‘Start-up India’ and ‘Make in India’, widening the tax base, project finance reform, low levels of capacity utilization (71%) and management of the exploding NPA issue among public sector banks.
A leading voice in the field, he made the case for deepening financial education to bring the power of markets to every home in India. The magnitude of the challenge became quickly apparent when the students learned that a mere 3 lac citizens have DMAT accounts, of which no more than 9% are ever active on any given day. Dr.Srinivas stressed the catalytic power of the markets to deliver grass-root development as opposed to urban centric growth while calling for supportive policy frameworks. In the absence of such targeted multi-actor action, India’s mighty demographic dividend could unravel and become the Achilles heel in the greatest development story that never came to be.
P.S. A quick tip from the man himself – education, healthcare and entertainment.
Date(s) - 29/09/2016