Sensex Gains Momentum; Auto Stocks Surge

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After opening the day on a positive note, the Indian share markets continued their momentum and are presently trading in the green. Sectoral indices are trading on a positive note with stocks in the realty sector and oil & gas sector witnessing maximum buying interest.

The BSE Sensex is trading up 118 points (up 0.5%) and the NSE Nifty is trading up 37 points (up 0.5%). The BSE Mid Cap index is trading up by 0.7%, while the BSE Small Cap index is trading up by 0.8%. The rupee is trading at 68.03 to the US$.

Soon, it will be a month since we heard the term demonetization after a gap of thirty-eight years. The intent was to target black money. And to check terrorist funding. This is all known.

But one indirect objective of checking black money is to bridge the income disparity in the economy. As black money loses its power, we assume there will be a shift of funds from illegal activities to more honest and deserving hands.

However, let us go through some recent facts to answer whether the demonetisation drive will reduce the disparity between the rich and the poor.

Income disparity in India has been widening over the recent past. According to the latest data on global wealth from the Credit Suisse Group, the richest 1% of Indians now own 58.4% of the country's wealth. This share of the top 1% is up from 53% last year, and 49% in 2014.

The income patterns are ensuring that this disparity keeps getting wider instead of being bridged. As one of the recent editions of The 5 Minute WrapUp states...

• As per latest NSSO data, published by Mint, India's richest 20% have 45% of aggregate household disposable income. The poorest 20% earn barely 7% of the aggregate income pie. In fact, the monthly household disposable income of the poor (Rs 7,739) is about one fourth of the rich households (Rs 29,775).

This huge disparity between the rich and the poor is clearly visible in the chart below:

The Huge Disparity Between the Rich and the Poor

As per the survey, lack of education and employment opportunities for the poor are the primary factors that cause income inequality.

As per us, India's growth story is unlikely to take off unless the issue of inequality is tackled by the government. In fact, India's most valuable asset, its youth, could become one of its biggest liabilities if the gap keeps growing. With neither the problem of education nor job creation getting addressed, gaping income inequality remains a huge social risk.

We recently came across a truly shocking number that highlights this risk. A number that concerns every Indian, including you and me. And there is a possibility that the demonetisation drive will make this number worse.

Here's everything that you need to know about this number.

On the news from global markets, the Italy referendum has attracted most of the headlines. Italians voted to reject constitutional reforms. That further led Matteo Renzi to resign as the country's Prime Minister.

All of this is happening in the Eurozone. And it's a mess. First came the Grexit saga. Then there was Brexit. Now there is a fear of Italexit.

While the referendum wasn't about the Eurozone, could Italy be next in line after Britain to exit the Eurozone? A look at ground realities suggests that dark days could be in store for the Eurozone. As Rahul Shah writes in one of the recent editions of The 5 Minute WrapUp Premium...

• Youth unemployment has soared over 40% since 2013. GDP growth has been mostly negative since 2008. Even worse, per capita GDP has stagnated since the 1990s. Government debt stands at 133% of GDP (only Greece and Japan are higher). Private debt stands at 117% of GDP.
  
  Then there are the Italian banks. They are struggling with non-performing loans, the highest in the Eurozone. Contrary to what many believe, Deutsche Bank is not the weakest bank in Europe. It is Italy's third-largest bank, Monte dei Paschi di Siena. It needs five billion euros of new capital and has warned it may have to go out of business if it does not get it.
  
  Seven other regional banks are also in serious trouble. Apparently, only one bank, Unicredit, is believed to be strong enough to weather this storm.

  In short, there is a big crisis brewing within the Eurozone. And this is going to have major consequences for the global financial markets, including the Indian stock markets.

  The latest issue of Vivek Kaul's Inner Circle presents an intriguing insight on Italexit from our global team of experts in London and other corners of the world. We strongly recommend you to read it.

  For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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