Moneycontrol Pro Panorama | Desperate times call for desperate measures

economy

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It took a cut in stock trading levies to boost the mood among China’s stock market traders. The finance ministry announced halving of stamp duty to 0.05 percent and the capital market regulator separately announced slowing down of the IPO market, so that capital is not sucked out from the secondary market to fund primary market applications. The Shanghai Composite rose by over 5 percent intraday, according to this Moneycontrol report, while the CSI 300 rose by 5.5 percent and Hong Kong’s Hang Seng by 3.3 percent. These indices settled at lower levels subsequently.

These changes to transaction costs may seem cosmetic fixes for what’s a bigger problem facing China’s economy, but a better stock market mood is not something to be sniffed at. Healthier stock values can galvanise companies to make efforts on the business front to accelerate growth, even give promoters more confidence, so that these gains continue. It also improves the ability of companies to use equity funding to pay down debt or fund capex. Rising market capitalisation also gives investors the ability to invest more if they use leverage.

Still, there are limits to what these measures can do. The main work to be done is in the real economy. Earlier, news that China’s industrial profits fell for the seventh month underscored the deep trouble in which it finds itself. A Reuters report pointed out that profits of China’s industrial firms fell by 6.7 percent in July over a year ago, and have fallen by 15.5 percent in the year so far.

The outlook for commodity firms is weak, consumer spending too is weak, the property market is struggling to recover and overall, this has led to weak conditions for banks too. More measures are needed to shore up growth, but the fiscal and monetary measures reflect an incremental rather than a big bang approach to reviving growth.

A clearer picture of the damage will come this week when Chinese companies in sectors such as heavy industry, property and finance release their second quarter results, says this FT report (free to read for subscribers). These earnings will give a closer look at the overall impact of the economic woes on companies, which will give a better idea compared to the macro data. Expectations have been falling and more downgrades are expected post-earnings. Incidentally, while steel output in China did recover year on year in July, our chart of the day today points out that a low base effect may have something to do with that.

While that’s the situation facing China’s investors, what about India? Our resident markets expert Shishir Asthana writes on the market view, with this week beginning on a promising note after US Fed chair Jerome Powell’s speech saw US markets react positively. He also looks at clues in market indicators to discern what may lie ahead. Don’t miss reading it, here’s the link.

Investing insights from our research team

Ruchira Papers is penning a transformational journey

Ami Organics: Opportunities in battery value chain not priced in

Va Tech Wabag: Higher execution in the coming months to support earnings and stock

What else are we reading?

ECB president quotes Kierkegaard at Jackson Hole to warn of policy risks

In The Money: Enhancing the Naked Short Call via the Bear Call Spread

The North-South divide — India needs to balance heart with head

Can Vedanta’s demerger proposal keep shareholders and promoters happy?

The Eastern Window: China’s dominance over South China Sea seriously challenged

Superbugs: why it’s so hard to stop the ‘silent pandemic’ (republished from the FT)

Why India should encourage Online Dispute Resolution

The investor-founder partnerships that’ll crack India’s flourishing but highly competitive consumer market

After Karnataka, Madhya Pradesh too slated for a centrally driven BJP poll campaign, but will it backfire?

Locating server farms near renewable energy projects is key to AI's future

Vivek Ramaswamy’s luck will run out in Trump’s GOP

Emissions: How China’s downturn could save the world

Technical Picks: HDFC Bank, Indus Tower, Ambuja Cements, Guar seed, Reliance Industries and USD-INR (These are published every trading day before markets open and can be read on the app).

Ravi Ananthanarayanan
Moneycontrol Pro