Myself Pinku. I own a shop at Jhumri Tilaiya’s main market. Same Jhumri Tilaiya, you know, immortalised by Bollywood songs and Binaca Geetmala. Prosperity reached us years before other parts of the then undivided Bihar, thanks to mica mining. Participating in radio shows was our way of getting published in newspapers, you know. Our akhbaar mein naam moment or getting noticed, so to say.
Other than being an ace trader, people in my neighbourhood call me Chota Jhunjhunwala. Ace investor, you know, with full English medium schooling and all. People approach me for stock tips. But what the hell is going on now?
Since I wanted to go abroad in December, I decided to make a short-term investment of Rs 2 lakh for a quick buck.
Going by rapid strides made by Jio and stellar shows by most of the non-banking financial companies, I carefully selected two stocks for investment – Reliance Industries and Indiabulls. I got the shock of my life when my broker informed me a while ago that my portfolio is worth Rs 1.66 lakh only now. I have lost Rs 34,000 in just one month, despite selecting two solid stocks.
Going by the recent trend of sell-off and even more sell-off, I have lost all hopes of quick return on investment.
Chota Jhunjhunwala Making Sense of Market Crash
Since I am known as Chota Jhujhunwala, I need to know the reasons behind such a sharp sell-off. I don’t rely on all those market expert types on business channels. They repeat the same lines: buy on dips, fundamentals are strong and sharp recovery is round the corner, think long-term as ours is the fastest growing economy….and blah blah. I called up my broker to get a sense.
“Rupee is falling, crude is rising, current account deficit is widening, and foreign investors are pulling out money. Current carnage in the market is a result of all that,” my broker said.
I couldn’t understand a bit of what he said. Only recourse available for me was to call up my neighbour’s learned uncle who happens to be a celebrated economist. “Calm down, my son. Since the US economy is showing signs of strong growth, investors perceive better return on investment while investing in US treasuries.”
“There is, therefore, a flight of capital from all emerging markets. Dollar going out of India means scarcity of dollars in our country, making the greenback expensive. Expensive dollar means cheap rupee,” he told me, while explaining the reason behind the weakening of our currency.
Weak Rupee = Higher Prices = Higher Interest Rates
“Rupee has weakened close to 14 percent this year. Which means all imported items, including crude oil and gold, are at least 14 percent costlier because of rupee-dollar exchange rate alone. Since we import a lot more than what we export, our trade deficit has ballooned, putting further pressure on rupee,” he told me.
Then he added the scary bit. Since rupee is weakening, crude is at a four-year high of $86 a barrel and taxes on diesel-petrol at record level, there is triple whammy for us.
“Petrol-diesel at record high means we have less to spend on other items. Transportation is going to be costly and the prices of everything else therefore are bound to go up. Higher inflation means higher interest rates. You know all these factors depress economic growth. When there is depression all around, how do you expect share markets to go up,” the learned economist reasoned.
Now I know why going abroad on a vacation is costlier, since you have to pay in dollars. Why my uncle has to pay more now for his son’s education abroad? Very simple: we have to pay more for everything for which payment is to be made in dollars.
Suffering of Small Businesses
Having got a sense of the market crash, I couldn’t figure out the tepid response of customers at my shop.
“Did you watch the live telecast of farmers’ protest on the outskirts of Delhi this week? Farmers aren’t making money as they are made to sell their produce at a price lower than the cost of production. On top of that, there is an additional burden in the form of much higher prices of petrol and diesel.”
“Wages of farm and non-farm labour in rural areas aren’t growing. Job creation has been slowest in many years and much less the overall rate of growth of economy. Then the botched-up implementation of goods and services tax (GST) which has raised compliance cost for small businesses like yours.”
“The problem is, a vast majority is still waiting for elusive achhe din to come. A dip in consumer spending is perhaps a result of that. That is the reason why you see contraction in your business. You have additional burden of catering to the needs of farmers who are clearly in distress,” the learned economist said.
My sense of dejection only increased after getting a sense of what is ailing our economy. As the day progressed, correction in the share market kept accelerating.
I have no inclination to check my portfolio now. The idea of going abroad on vacation is dead and buried inside. The plan of buying the latest iPhone model on Dhanteras has gone forever. My mind is focussed now on cutting operational cost of my shop. All I want to ask now is mere liye achhe din kab aayenge.
(This is a fictional account of a small businessman who is an occasional investor in the share market)
(At The Quint, we question everything. Play an active role in shaping our journalism by becoming a member today.)