Green shoots of recovery visible, but mind the gap ahead
Samarth
Market Perspective: A weekly article on stock market

September saw some encouraging signs of economic recovery, the green shoots that herald spring. For example, the Purchase Managers’ Index was at an 8.5 years’ high, the GST collection in September rose 4 per cent, the growth in sales of cars and two-wheelers was at a two-year high and among other parameters.

As per JM Financial, sowing in the Kharif season is up 6 per cent, led mainly by oilseeds and paddy, and capacity utilisation levels have reached or exceeded pre-COVID-19 levels in tractors, steel, two-wheelers and upstream oil and gas.

Reforms need to be communicated well

The government has introduced three farm bills, seeking to free farmers from being tied to local markets, and giving them the freedom to sell to anyone. At various points in time, various governments had tried this, and opposition parties had opposed it, placing their loyalty to serve the party above their loyalty to serve the country. So now, opposition parties are opposing bills they had once proposed. The government intends to narrow the gap between what the farmer gets for the produce and what the end consumer in urban areas pays. This value add goes largely to middlemen and by giving the freedom to sell to anyone, if the gap reduces, it will benefit both ends. But the protest by farmers reveals poor communication to bridge the difference in perception.

The government has also introduced labour legislation for ease of doing business, to attract more FDI, sorely needed after the ravage to the economy by COVID-19. Here as well, better communication has to be undertaken. With the advent of the fourth Industrial Revolution, the number of 9 to 5 jobs will reduce. People will have to take up shorter assignments and refresh their skillsets continually.

COVID-19 prepares humankind for Industrial Revolution 4.0 and job losses

Robotics is one of the pillars of the fourth Industrial Revolution. Car companies are increasingly using robots to replace jobs for better efficiency. German automakers like BMW on average use 346 robots per 10,000 workers, according to a Forbes report. This trend is definitely going to impact India.

Perhaps COVID-19 is preparing humankind for the advent of the Industrial Revolution 4.0. Think about the jobs already lost, and the work from home culture readily adopted by all.

The traditional auto industry is set to undergo a disruptive change due to EVs (Electric vehicles). Tony Seba, a world-renowned author, thought leader and entrepreneur, pointed out in his 'Future of Transportation' lecture, the previous disruption in transportation took place 13 years ago. At the Easter parade in NYC in 1900, there was one car in a sea of horses. Thirteen years later in the same parade, there was one horse in a sea of cars.

A similar disruption is set to happen when traditional auto gets disrupted by EVs, which cost one-tenth to maintain because of fewer moving parts. Once the cost of the EV equals that of a fossil fuel vehicle, which is soon to happen, the latter is basically wiped out. The cost of an electric battery is dropping and Elon Musk has announced a USD 25,000 Tesla soon.

So what happens to the jobs of auto companies in India? The government has to communicate the consequences of future technologies to the people and why change is inevitable.

Short-term action

Some sectors like airlines and hospitality industries would take time to recover, but other sectors can recover faster, especially with a demand push. This push can come from lowering GST rates, which the government should consider because with a demand push, it can fetch higher GST collection despite lower rates. If the government can gather the will to do so, the recovery can be a sharp V.

The Sensex rose 4.7 per cent last week to close at 38,697 points. So, this week investors should watch out for more green shoots, and see how well the government tackles the farmer agitation.

Mulraj has been writing a weekly column on stock markets for 38 years. He is India Head for FinanceAsia, a part of Haymarket Media group. The views are personal.

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