Taste the thunder

2017 hurtled to a nail-biting finale as equities surged and consumer confidence slipped

At a point well past half time in 2017, it looked as if there were no clouds with silver linings for the economy. Even as the country was recovering from the frenzy of the recall of high-value notes late previous year, a torrent of reforms swamped industrial activity. MSP, NPAs, MRP and IBC were the acronyms of the year, arousing passionate polarization. Developers were put on leash and sick companies cut off from the drip of credit. Signs of Cyclone GST triggered a wave of disruption. An umbrella with five different hues of a common tax was barely adequate to shield from the complicated and cumbersome compliance regime.  Agrarian distress despite normal monsoon became the fodder for debate. As a result, growth caught a cold and slipped into a slumber mid-year. If the 2G scam verdict confounded, the stock-buying frenzy was justified by simple maths: Higher tax base equaled higher government spending on infrastructure, a sure-fire demand propeller. Due to the surge in deposits from panicky households fearful of crackdown, banks were swimming in liquidity and did not need the raft of higher rates to attract savers. So much was the deluge of cash inflows that some asset management companies had to turn off the subscription tap. Foreign investors making a beeline to make in India bolstered reserves to record high and kept the rupee strong. Benign oil prices due to worldwide slowdown narrowed the current account deficit. Riding on optimism, equities ran ahead of earnings even as consumer confidence plummeted on pessimism. In an era of low costs, stocks became expensive. Issuers rushed into the ring with pricey offerings that ranged from the largest share-sale in the history of IPOs to those getting 100 times oversubscribed and debuting at 100 times gain on tight supply.

Impressed by the resolve to shake up a lethargic economy, the World Bank pushed up India to the 100^th place in the Ease-of-Doing business ranking. The tailwinds turned into a tornado, when a global credit rating agency upgraded the outlook to investment grade and two others lavished praises while maintaining the status quo. The satisfied purring emboldened equities to notch new records. The high mast of valuations were powered by the anticipated discipline in the real estate sector, interest subsidy for first home and support to low-cost housing to encourage buyers to take the plunge. The ripple effect was supposed to spur consumption across the board. Cheering from the banks would be the lenders, freed from their excessive baggage of bad loans courtesy the lifeline thrown by the liquidation law. The storm in the tea cup was who should bid. The big chill was the realization that there might be a slip between the intention to become lean and actually becoming mean despite supplementary infusion of capital and that private investment will revive only when companies shed their fat to become ready to swim. Among those rushing to become slim were conglomerates fattened on a diet of junk consisting of cement, construction, telecom towers and spectrum, steel, DTH, real estate and retail. The most notable weight-loss exercise was executed by an Indian steel giant, assigning a German guardian for its British offspring.

The rumblings in the corporate corridors were not restricted to the issue of collecting useless trophies. Egos were bruised in bloody battles with successors for supremacy. Instances of favorites turning foes were not confined to the boardrooms. Regulatory inspections and approvals left pharmaceutical investors spinning. The volatility extended to a re-look at the companies managed by the elder Ambani sibling in H1 and the younger one in H2. Shunned sectors such as metals and PSU banks turned into the flavors of the season. Private-sector banks and the central bank clashed on asset recognition. The tense game of thrones in the telecom sector ended with just three survivors. Tech players looked poised to leap back to life after a hasty burial as the Federal Reserve signaled that the US economy was on a sound footing. After being down in the dumps for most of the year, oil staged a comeback, spreading panic as the tamed consumer prices strained to break free. The surest sign that the mood was changing from being politically correct to simply being realistic was the dimming of the ferocity of the winds trying to demolish the unique identity program to weed out fakes and the muted protest to the US Federal Communications Commission’s repeal of net neutrality. 2017 was not for the weak-heart. Capturing the essence of the year was the cliff-hanger in the epic theater of intrigue staged in the home state of the prime minister. If not for the ending, India looked set to turn back in time to the medieval age of queens and princes.

Mohan Sule