Indian equity markets began the day's proceedings on a cautious note today and moved deeper into the red in the subsequent hours on the back of relentless selling pressure across heavyweights. There was no respite in the final trading hour as well and the indices closed below the dotted line. While the Sensex today closed lower by 141 points, the NSE-Nifty today closed lower by 47 points. The BSE Mid Cap and the BSE Small Cap were not spared either as they closed lower by 1% each. Losses were largely seen in Oil and gas, metal and auto stocks.
As regards global markets, Asian indices closed mixed today while European indices have also opened mixed. The rupee was trading at Rs 55.65 to the dollar at the time of writing.
FMCG companies closed mixed today. While Dabur and Colgate closed firm, Hindustan Unilever and Pidilite Industries closed into the red. As per a leading business daily, consumption in rural India is growing faster than that of urban India in recent times. Given that the size of the rural population is huge, the consumption in absolute terms has always been higher than that in urban India. For instance, between 2009-10 and 2011-12, additional spending by rural India was Rs 3,750 bn, as compared to Rs 2,994 bn in urban India. The reason for the strong growth in rural consumption has been attributed to rising rural incomes due to increase in non-farm employment opportunities and the government's rural focus through employment generation schemes. As per data, during 2004-05 to 2009-10 rural construction jobs rose by 88%, while the number of people employed in agriculture fell from 249 m to 229 m. In addition, migrants from villages to urban areas who benefitted from job opportunities in infrastructure and construction projects increased remittances to their families in rural India. This also helped boost consumption. Indeed, this is a trend which the FMCG companies in India have been capitalizing on to increase penetration and reach and thereby revenues. Especially since urban areas are reaching saturation limits.
That the Indian economy has slowed down is something that cannot be disputed. In the January to March quarter, GDP growth fell to a low of 5.3% and the data on industrial production is also not something to be enthused about. The Reserve Bank of India (RBI) in the meanwhile has been under pressure to cut rates to bolster growth. The central bank had undertaken 13 consecutive rate hikes in the past, before deciding to halt as growth slowed down. Although, it did cut rates by 50 basis points, the last two quarters has seen the RBI maintain status quo. Obviously, the biggest worry for the central bank is inflation. And while growth has slowed down, inflation has not really cooled down. What is more, there could be added pressure in the coming months as monsoons have failed to live upto expectations. The RBI has clearly stated that inflation is a bigger concern for it than growth. What this means is that the burden of bolstering India's growth cannot solely lie on the central bank. The government needs to swing into action as well. It needs to cut down deficit and reduce supply constraints so that inflation does not remain a concern for the years to come.