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Poll view: Felt-good... - Views on News from Equitymaster
 
 
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  • Apr 19, 2004

    Poll view: Felt-good...

    Elections are round the corner and the government did its best at trying not to miss any single opportunity of taking advantage of the prevalent 'feel-good factor' in the economy. The GDP grew at a staggering 10.4% during the December 2003 quarter with the whole of FY04 GDP growth being pegged at over 8%. The stock markets have performed splendidly over the last 1-year and the government has also been trying to frame industry friendly policies.

    Amidst all this, we had conducted a poll on our website wherein we tried to find out a couple of things from our readers. First question was aimed at finding out whether the people felt the feel-good factor to be for real and the second was, what had caused the same. The results are depicted in the charts below.

    A majority (57%) of those who took the poll thought that the feel-good factor was actually for real, while over 1/3rd of the total (37%) felt that it was not. Further, in the follow-up poll, 39% of the voters felt-good about the high GDP growth, while the rising stock markets made 32% of the voters feel good. The balance 29% was happy with the government policies and initiatives.

    The pace of the Indian GDP growth has been making headlines in the recent past owing to the fact that during the third quarter of FY04 it managed to overtake the world's fastest growing economy, China (9.9%), by registering a growth rate of 10.4%. The reason for the growth over the last few quarters is the fact that India's GDP growth has a high degree of correlation with the performance of the agriculture sector, which in turn is highly dependant on monsoons that were very good last year. The high correlation between GDP and agriculture is primarily because of the dependence of a significant percentage (nearly 65%-70%) of the Indian population on agricultural income. While over the years the contribution from this sector has declined to GDP, in terms of the magnitude of impact on the overall economy per se, the importance of the agricultural side continues to remain significant.

    The second big factor that has helped in sustaining the feel-good factor is the rising stock markets. As can be seen in the chart above, in the last 1-year, the Indian benchmark index, BSE-Sensex, has appreciated by an astounding 100%! Apart from the improving GDP growth rates, the under valuation of Indian equities relative to most other developing/developed countries, helped attract a lot of foreign money into Indian equities during the last 12 months. This helped the surge in the indices.

    The third factor that aided the feel-good factor was the various government measures, policies and initiatives taken during the year that helped create an improved investor confidence, both domestic and international. These included the continuous thrust on infrastructure development projects for roads, railways, airports and ports. Further, by following a low interest rate policy, the government has provided a great help to various industries. Owing to the low interest rates and on account of high liquidity in the markets, the average Indian is spending more on cars and houses with a renewed vigour, which has helped key infrastructure industries like steel, cement and automobiles.

    Also, the various sops doled out during the mini-budget were aimed at aiding India's elevation into a competitive global environment and towards free trade, which are all important for the sustenance of the current growth rate being witnessed in the economy. Other initiatives included the passage of the Securitisation Bill, the Electricity Act and the successful completion of the government's divestment process, all helped in sustaining the feel-good factor in the economy.

    To conclude, while the government has succeeded at keeping the feel-good alive as yet, one now needs to seriously look at the long term. In the 21st century India needs a long-term vision without the shadow of politics!

     

     

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