Market Watch: Cannot let the feel-good fade

Updated on Feb 15, 2008 08:27 PM IST
The one strong underpinning of this multi-year bull market has been how confident businessmen and investors have felt about the future, writes Udayan Mukherjee.
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None | ByUdayan Mukherjee

Amidst so much talk and analysis of what is going wrong in the economic world today, the one thing that has not been stressed enough is what impact it may be having on the "feel-good" factor for stewards of the Indian economy.

The one strong underpinning of this multi-year bull market has been how confident businessmen and investors have felt about the future. This is not as tangible or quantifiable as other economic metrics but every bit as important.

After all, businesses and markets are run by human beings. When they feel less confident, they go into a shell, which often compounds the problems which made them less confident to begin with.

Put yourself in the shoes of the CEO of an Indian company and ask what he must be feeling today. Just one quarter back he had unlimited access to capital, the economy was cruising at 9 per cent and the global economy was expected to deal with a US slowdown and come out of it relatively unscathed.

Now, it appears the US is probably already in recession, economists are talking about a serious Asian slowdown, Indian GDP growth is grinding closer to the 8% mark by next year, industrial production has turned sluggish, interest rates are stubbornly high with the Reserve Bank of India reluctant to cut yet and access to equity capital is drying up with big IPOs being pulled out. Global investors are also getting risk averse so access to private capital and even global market access may be constrained for companies. All this is happening at a time when Indian companies are in the midst of executing fairly significant expansion plans requiring large capital expenditure.

For managements to take on more risk and for investors to fund it, sentiment needs to be strong. Yet, everything that has happened in the last few weeks points in the opposite direction. Not to mention the state of the stock market. Never believe a CEO when he tells you market movements do not concern him.

A large part of the feel-good in any economic environment is derived from the capital market, make no mistake about it. Do you doubt that business sentiment will be crippled if the Sensex goes to 12,000 and stays there for some time?

Sentiment is a fickle thing, it turns all so easily. Once managements start withdrawing, it is a slippery slope. Guardians of the Indian economy must recognise the risks of a souring of sentiment and do everything in their power to stop it. Admittedly, the influence of policy makers on business sentiment is limited yet small steps can have surprising effects.

Have we not all seen how a mere pat on the shoulder from a captain galvanises a young fast bowler? In our maze of numbers we forget we are all so human. Can the RBI signal lower interest rates and stoke demand? Can the finance minister cut taxes and provide a fiscal stimulus? Could a few large issuers hit the market with some really attractively priced IPOs and revive sagging primary market sentiment? I do not know the answers but shoulders are sagging a bit. One can see it. We just cannot afford to let the old feel-good fade away.

(Udayan Mukherjee is an Executive Editor, CNBC-TV18)

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