Indian Indices Open Flat

Mon, 25 Jul 09:30 am

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Major Asian stock markets have opened the day on a mixed note with the stock market in China trading higher by 0.3%. While, stock market in Taiwan is trading lower by 0.8%. Benchmark indices in Europe and US ended their previous session in green. The rupee is trading at 67.13 per US$.

Indian stock markets have opened the day on a flattish note. The BSE Sensex is trading marginally lower by 19 points (down 0.1%) and the NSE Nifty is trading lower by 7 points (down 0.1%). While, BSE Mid Cap and BSE Small Cap have moved upwards and are trading higher by 0.5% and 0.6% respectively.

Baring stocks from metal and banking sector, major sectoral indices have opened the day on a positive note. Stocks from oil & gas and realty sector are witnessing buying interest.

As per an article in Business Standard, companies are increasingly borrowing through the corporate bond market. The data compiled by Bloomberg states that the companies have borrowed Rs 311.9 billion through the bond market in this financial year. Whereas, this figure stood at Rs 215.8 billion in the same period a year ago.

AAA-rated companies are able to raise money now at 7.75-7.85% on the back of falling interest rates. Further, the investor base for the corporate bonds has also increased. Earlier, provident funds weren't allowed to invest money in corporate bonds of AA-rated companies. However, new provisions allow them to invest in such corporate bonds.

Having said that, bond dealers are of the opinion that the companies are borrowing slowly and not as much as they should when the rates are at a multi-year low. Further, a majority of the loans is being borrowed to repay the old debt.

Hence, the money borrowed is not being used for expansion or building new capacities. This is partially on account of the prevailing excess capacity situation. The latest report of the Reserve Bank of India states that the firms were able to use only 72.5% of installed capacity.

Subdued demand from the global markets coupled with sluggish domestic demand has led to excess capacity situation. Until the situation of excess capacity is resolved, the companies would not be inclined to borrow even if the interest rates are at their very lows.

In another news update, India is celebrating its 25th anniversary of economic liberalization since 1991. Sure, many things have changed since then for good. Liberalization marked the end of License Raj. The economy was opened to the private sector as well as foreign players.

However, there are still many matters on which we are worse off than in 1991. One being, the share of manufacturing in the gross domestic product (GDP). In 1989-90, the share of manufacturing in the GDP was 16.4%. Whereas in 2015-16, even after myriad new manufacturing policies the ratio stood at 16.2%. That's worse off than in 1989-90.

The weak share of the manufacturing sector in GDP is partly on account of weak labour laws. It is often argued that Indian entrepreneurs do not expand beyond a certain point because it is very difficult to fire workers once they have been taken on. The Chapter VB of the Industrial Disputes Act, 1947, makes it very difficult for companies with 100 employees or more, to fire an employee without the permission from the government. Such laws prevent entrepreneurs from expanding.

Though we have come a long way from the manner in which we operated before 1990-91, there are many structural issues which still need to be addressed to sustain the tag of the world's fastest growing economy.

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