Expectations generally are low heading into Budget 2022, but that masks a big need to put India on the "true" recovery path. India Inc has been pitching in a healthy performance, and that has optically worked well to create a "feel good" sense among a section of the educated, better-off population. But that isn’t India. The majority of India is struggling.

Unlike most countries in the world, India has an extremely high proportion of self-employed population. As a share of the total employed, this stood at almost 76 percent in 2019, according to World Bank data. This is against a world average of 47 percent, and even significantly higher than Indonesia (52 percent) and Vietnam (54 percent). And this section of our population has been hit severely hard by the COVID. All the talk of formalization of the economy and the merits of it are fine, but the informal economy is too big to ignore, and the effects of its distress were bound to trickle through. And they are becoming visible now.

Source: World Bank

CONSUMPTION & EMPLOYMENT

Top honchos from the consumer goods companies have been flagging the slowdown in consumption. While FMCG majors are seeing a visible slowdown even in the rural market, two-wheeler majors have seen their economy segment products struggle to draw customers. To be sure, a large section of the prospective buyers would be from the unorganized sector or from small and medium businesses, all of whom have borne the brunt of the COVID disruption—as they lack the resources of large corporations to tide over the pandemic patch.

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To give you a sense, as per the government's MSME Annual Report for 2020-21, there were 634 lakh such businesses employing over 11 crore individuals and generating over 30 percent of the country's economic output (33.5 percent of GVA in FY19).

Source: MSME Annual Report FY21

If even 10 percent of these businesses have been put out of business, that could mean about 1.1 crore jobs being lost. That’s more than the expected direct job creation by all the PLI schemes together, estimated at 1 crore by Quess Corp, over the next five years.

What's more, the move towards digital transformation is bound to disrupt businesses and make more jobs redundant, even as it spurs demand for technology services professionals—which is evident in the hiring challenges and rising attrition in the IT services sector.

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Given this, and the evident stress in the job market—the unemployment rate of 6.6 percent on January 29 on a 30-day rolling basis and the 7.91 percent in December (CMIE) are way higher than the 4.7 percent rate in 2020, as per World Bank data—there is an urgent need not just to create more jobs, but also make the workforce employable in the "new" economy. This calls for re-skilling at a massive scale, which it would be unfair to expect the Government to manage on its own.

While many large and progressive corporates are investing a fair deal in re-skilling their own workforce, this needs to become pervasive. The re-skilling of employees and non-employees needs to become an urgent national mission, as only a large productive workforce can truly propel the economy forward. And if some sops or incentives are required to push the agenda, so be it.

Source: CMIE

On February 1, the nation will eagerly wait for the Finance Minister to try and script an economic boost that will drive consumption and boost employment. If that can be managed without upsetting the fiscal position, it will be cheered all around. And that does seem possible given that tax revenues are robust, though fuel tax receipts will fall, and the proceeds from disinvestment should be much larger in the next fiscal.

BUDGET & THE MARKET

Budget day is often spoken about as being a day of high volatility for the market. And many look to decipher if the trading action in the days immediately preceding the event determine the direction or extent of movement on the day.

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We looked at the Nifty index movement on previous Budget days to try and assess where the truth lies. We found that there is a negative moderate correlation of 0.43 percent between the index movement in the 5 days preceding the Budget and the move on the Budget day. Given that the index is down near 3 percent over the past 4 sessions, there is a moderate chance of an upside. But volatility is clearly likely, with the average high-low variation on Budget days being about 2.5 percent, and the historical range being a wide 0.7 percent to 4.9 percent. So tread cautiously.

But what's got the market more worried of late is the prospect of a possible bear phase after the strong liquidity-driven run in the markets. And many are looking at the 200 day moving average as an important level to track, to test the market’s strength and resilience. But what if this Lakshman Rekha is breached?

Well, a look at how the Nifty has behaved on previous dips below the key indicator reveals a sub-200DMA phase of between 16 to 141 days, if you go strictly by the break-down date and the break above dates. If you include the whipsaws between October 2018 and March 2019, the total days work out to 152. While five months isn’t a short period, in the life of a long-term equity investor, that’s par for the course.

So, if the Indian economy retains its growth momentum, and the Finance Minister can help a great deal here, within a year from now, you should be comfortable if you buy into a sharp dip below the crucial indicator. Patience and fundamental conviction in your investee companies is the secret sauce of equity investing. Stay disciplined.

(Edited by : Jomy Jos Pullokaran)

First Published:Jan 30, 2022 3:11 PM IST