Response to Economic Stimuli ? Market Fall ?

We are all excited about the 200,000,00,000,000 package announced by Prime Minister Modi and are trying to find its possible and plausible impact on our lives. If we try to do the math the figure comes out of be roughly 10% of our Gross domestic product (GDP).

It would be very interesting to know what it comprises of or what things contribute, who contributes to it and where do we stand.

Sector	Contribution
Primary	16.00%
Secondary	29.00%
Tertiary	55.00%

To simplify Primary is Agriculture based and allied business, Secondary is Manufacturing and tertiary  is the Service sector.

Stock markets initially rallied from the bottom created by end of March almost falling 38 % from the peak and by April we saw almost an unreal rally which recouped almost half of the lost ground and now the stimulus package is here markets response to stimuli was that of a shock.

I had to recount the number of zeros, still unsure if I missed one in this 20 trillion rupee figure, sure this looks massive a look at its break up and how much have we done to save the economy versus the globe.

Ok so India's GDP and most importantly per capita GDP is not comparable on an absolute basis the numbers don't look small by any stretch of imagination. Let's have a look at them  in the table below.

GDP Ratings

I have taken data from the IMF website as you shall find varying data from all sources, if  we rank countries by nominal GDP in absolute terms we are amongst the so called as fantastic five and we proudly can pump  our fist but the moment we take our population in count we realise we hardly make a cut amongst the top 150 nations ( 144 rank). So agreed we have problem of plenty and we are or less cognizant of the same and unlike our bigger communist counterpart we are not forcing issue of one child/ two child policy.   Keeping this context must say it's a bold move. And i don't give that deal of priority to stimulus as much as the reforms the so called as process of removal of impediments in economic growth.

Now the so called as LLL/Labour, Land& Legal reforms can be a second turning point in her growth story. Last was in 1991 when Dr. Manmohan Singh gave the historic speech and we are what we are where we are due to his moves on LPG /Liberalization, Privatisation and Globalisation. Mind you very well as genius as it may sound it was not a proactive visionary move, it was very much forced upon when we had the Balance of payment crisis. So let's accept we are like that kid who always chills for better part of the year  and when grey clouds of semester exams loom large and there is no way out he opens the book. This time around its not much different, we have made the move of big bang reforms only when we are pitted against the wall.  Now the million dollar question why is market reacting the way it is ?

The devil lies in the detail. If you look at the stimulus from where the Govt is going to fund this amount ?  If you look at major part of the stimulus has to be funded by borrowing. Now it's estimated that a borrowing in excess of  INR12,000,000,000,000 ( 12 lac Cr)  will be needed to plug the Gap.

Most of it is going to come from borrowings. Which means India's Debt to GDP will sky rocket, on account of piling of new debt and fall in overall economic .

Which may put bond yields under pressure and there is a fear that India's sovereign rating might be under threat of being downgraded.

All these factors make the market nervous in Short term. Well in short term it's never behaved rationally, so makes it impossible to predict. Successful traders tend to react and chase momentum/trend rather than pre-empt the market. Well there is no denying the Labour and  Land reforms will transform the landscape and we shall be the new destination who might just steal a part of thunder from China.

And I choose my words carefully, what China has achieved in last decade has been impeccable to replicate that will take lot of dogged determination and statesmanship from our leaders and sheer obsession to achieve by our entrepreneurs.

All in all these are exciting times we live in and coming decade shall for sure be better than the previous ones.