8. WHY THE STOCKS LIE THE FALLACIOUS RELATIONSHIP BETWEEN STOCK MARKET AND ECONOMY

ATTISO BHOWMICK

University of Agricultural Sciences (UAS), Bangalore

Why this Cacophony?

governed by a lot of factors. The evaluations of the stock market are in disagree-

Why the Stocks Lie — ment with the macroeconomic variables which define the general economic conditions. While the macroeconomics predictions are extremely bearish, the stock The Fallacious

Relationship Between markets seem to portray a raging bull. This dissonance can be attributed to a multitude of complex socioStock Market -economic factors, the accumulated consequences of which resulted in such a phenomenon. • Optimistic Outlook of the Future Stock markets run on predictions for the future. If the future is bleak, the market becomes bearish, and if there is positive news for the future, the market becomes bullish. With the current economic conditions, the investors are surprisingly optimistic for the future. As market trends are always forward-looking, investors already looking towards a fast recovery. The belief that commercial operations will eventually become normal after the pandemic recedes, has actually The Irrational Relationship Between encouraged a number of investors to buy stocks Indian Stock Markets and Economy which has a significantly higher chance of recovery. This has caused a significant buying pressure, and in When common economic knowledge suggests that turn increased the stock prices. the stock markets should suggest the general perfor- • Intrinsic Make-up of the Stock Market mance of the country’s economy, the Indian Stock Indices Markets seem to have greatly differed from this notion. The backbone of the stock markets—the stock Another major factor is the giant companies the make prices should reflect the investor’s expectations about up the indices operate under different circumstances future corporate performances, which in turn depend when compared to the nation’s small businesses, ofon the economic conditions of the nation. When In- fice workers and the general public. A significant pordia experienced the strict lockdowns to tackle the tion of their revenue come from foreign investments. COVID-19 problem, businesses, corporates, factories This also enables them to harness more capital and and shops had to bear consequences, which caused resources to withstand the economic crisis. In fact, the GPD to shrink to negative points. However, the market indices like Sensex and Nifty are designed to stock markets apparently emerged to have a mind of measure the performance of only the top 30 and 50 its own. It was one of the best performing market in companies respectively. the world in June, 2020, when the BSE Sensex rose to • Limited number of Investors as compared almost 8 percent. This queer phenomenon may seem to the population like a fairy tale being played out, but is surprisingly

The majority of Indians avoid investments in the stock markets. Only a meagre 18 million out of a total of 1.8 billion people in India are actually investors in the stock market. This causes a reduction of sample size when statistical techniques are used to evaluate the performance of the stock market and the general economy. The investor’s data are insufficient to adequately describe the economic conditions of the general public. Furthermore, most investors are from the educated and economically stronger sections of the society. This does not take into account the vast majority of poorer people in the country. • Exposure to Global Markets Way back in December, 1991, when liberalization of economy began, and allowed foreign investments in India, the stock markets came under the influence of foreign markets. In the present scenario, foreign investments, news, global economic policies are all essential factors that determine the stock market prices. Revenues from the foreign markets are also increasing each year. However, the macroeconomic analysis is primarily domestic and focuses on the economic conditions of the country. This is also a significant reason why the stock market growth seems to have divorced the economic conditions.

• Supply and Demand The push and pull mechanics of demand and supply on the stock prices can never be ruled out. The COVID-19 pandemic has created a skewed market. For example, biomedical and pharmaceutical companies have experience growth in their businesses however construction enterprises and airlines have incurred heavy losses. Moreover, companies suffering from losses has either laid-off their employees or reduced their numbers. This has caused significant unemployment and loss of income. As a ripple effect, significant changes in the market indices occurred which has further distorted it from the economic realities of the country.

Is There Any Possible Solutions for this Incongr uity

According to New York Times, economists who have conducted long term research work on the performance of stock market has concluded that there is comparatively very little evidence that stock market performance actually portray the economic growth. The linkage is weaker than expected. Moreover, the notion that stock markets reflect economic conditions is primarily based on correlation, not causality. The reasons are scientifically thought out hypothesizes which gets fulfilled under certain conditions only. The relationship is empirical in nature, and is only based on observations.

So, as such there is no real solutions as to how it can be rectified. Government regulations and policies can only do very little in this regard. Rather than treating it as an unnatural occurrence, it will be better to treat it as an organic occurrence, which can happen under the right circumstances. Stock markets do have a mind of its own, one which act independently sometimes when the factors favorably aligned.

Conclusion

During the earlier decades of the stock market, it was easier and simpler to link the performance of large companies to the economic health of the nation, partly because a large section of the middle class was employed by them. With the rise of numerous new companies, ease of doing business and more lenient government policies, that link has become obsolete now.

The incongruity of the stock markets and the economy is not a by-product of recent predicaments but a gradual change in the economic and business landscape in India.

VISHNU TEJA ANNAMRAJU

Goa Institute of Management

RAISE OF AGRI FINTECH Inherent Sustainable

Collateralized debt & Credit rating -Lack of collateral and credit history(rating), repayments in cash & non-availability of data, left out farmers from the Development credit system with no other option to approach priin awakening vate third-party lenders or NBFCs who exploit farmers by charging 14-26% interest to mitigate high risk The agriculture sector, the forgotten backbone of the associated with those loans. Indian economy, is estimated to show a growth of Even though NABARD has a Kisan Credit scheme, it 3.4% in FY 20-21, where GDP estimated to see a remained as a half-fulfilled stomach. contraction of -7.7%. From a bird's eye view, Pandemic in ally with Economic slowdown diffused a temporary recession into Indian economy which led migrant labourers or the ones who lost their job may be indulged in agriculture activities may be the reason but with an eagle-eye view, we can deduce that Agri Fintech is the prime reason and statistics proves that viz; as of 2020 there are 1000+ startups with $467 Mn funds raised from coveted investors like NABVENTURES by NABARD, Blume Global and other Blue-chip companies.

What is Agri Fintech?

Let first understand Agri-Tech sector, which has always been in the rain shadow region in means of funding due to multiple challenges involved in such as the Prevalence of informal credit- Be it a need of pesticides, flood, drought, a poor harvest, force farmer to look for quick & short-term loans leading them into the debt trap with interest rates as high as 10% per week.

MSP & No proper Supply chain – To get the MSP or sell the final product to consumers independently, farmers have to travel a lot; instead, they rely on agents who exploit them by not providing the fair price they get in the open market.

Source: Unitus

So, an opportunity sensed by many startups devised and developed various financing products & credit evaluation methods to fill the VOID, which established as Agri Fintech

Agri Fintech in INDIA:

Sub-Sector Landscape Methodology & Instr uments

1. Unconventional credit evaluation methods – The ability to analyse the risk in rural areas is

Source: Inc42 uses the same method to evaluate a farmer’s creditworthiness with variables like in an area “La salle Gao” where sending a daughter to college after 12th grade doesn’t mean much, whereas in another location “goatee” in which tribal farmers live, if a farmer sends a daughter to school after 7th grade means he is exceptionally progressive. Like this credit score is assessed depending upon various variables.”

Source: Jai-Kisan

different from urban areas. So, these companies are using different yet simple credit evaluation methods like for instance

2. Psychometric Lending Assessment - A traditional credit score predicts the likelihood of repayment of a loan based on the borrower's past repayment behavioural track record. Similarly, a psychometric test can list out the hidden personality and behavioural traits, including the borrower's value and belief system, which helps assess the willingness to repay debt.

Source: iadb

For example, JAI KISAN, an Agri fintech startup, 3. Collaboration- These companies mainly using B2B2C or B2C, or F2C (farmers to consumers) business models. To provide services, these startups partnering with banks, NBFCs, tech companies to integrate more tech as a solution to the supply chain a. Phygital Model – To pick up rapidly gaining traction, the idea of using a distribution model that combines physical and digital channels, Agri fintechs revamped the supply & distribution channel. For example, let look at these startups, i) PayAgri uses this model to provide all types of market linkage services to farmers & FPOs (Farmers Producer Organization)

Source: PayAgri

ii) IoTracX – developed two softwares, XAASENSE - enables real-time tracking & distribution process automation for both farmers & buyers through IoT and mobile apps. Agroblock – a TaaS (Traceabilityas-a-Service) for the agro supply chain in collaboration with Hyperledger Fabric Blockchain & AWS (Amazon cloud service) iii) Sammunati created an Agri value chain ecosystem for farmers & FPOs to provide market linkage 4. Crop- Insurance & Advisory - Using new age Agri analytics, these companies bringing consistency, dependability and sustainability to agriculture with real-time data collection, reporting, analysis and providing advisory like which crop a what time farmers cultivate, crop insurance, livestock insurance by interpreting & predicting that analysis. For example, Startups like NaPanta, Gramcover are providing above mentioned services Source: Gramcover

Source: Gramcover

These instruments and methods, coupled with • No Hidden costs

• Low-interest rates

• No Land mortgages • Less time process & Minimal Documentation • Easy EMIs are the prime reasons for global investors luring to invest and also closer to farmers

Sustainable Development

Agri Fintech is the quickest & most vital sector to build a sustainable ecosystem, and it has been realised foremost by these companies and started integrating SDGs (Sustainable Development Goals) viz; 1. Issuing prompt finance 2. By giving crop advisory-what type of crop at what time, which kind of and how to use organic or natural manures, which reduces the usage of harmful pesticides & fertilizers, thereby getting quality harvest and ample yield 3. Inhabiting modern methods like Soil moisture sensory tech., using solar panels & generating revenue from biogas etc. Apart from this to make farmers use all these facilities and other innovative products, infusing financial literacy and collaborations, which are creating jobs and value chain.

Benefits Agri Fintechs reap getting prompt interest payments, which keeps the working capital requirement cycle running along with earning profits. These are all the SGDs currently mapped with the Agri Fintech sector and working on to align SDG 14- Life below water & SDG 15 -Life on Land

Future Outlook

Even though this sector is performing better but it has its challenges viz; lack of talented personnel, investors, are also interested majorly in “market linkage products” rather than other departments like Farming as a Service, Farm inputs, innovation etc.; and no fullpledged support from government, even in recent 2021 budget also govt. not included FPOs and digital Agri infrastructure, mainly “Agristack”, which is a crucial element in the development of Agri Fintechs in “SWAMITVA” scheme

Source: Yourstory

Source: Inc42

To tackle these issues, Agri Fintech has to work on

building a 1. Digital Agri ecosystem with collaborating disruptive innovation like “SOUNDWAVE PAYMENT”, which is a tech going to redefine the realm of digital payments uniqueness of this tech is it works with feature phones, smartphones or any device without internet f a c i l i t y f o r m a k i n g p a y m e n t s . So, if these companies go hand in hand, they can build an ecosystem with all services that will be a solution.

2. “Agristack” – a database where each & every detail farmer will be made available. As a first step, “SAMMUNATI” developed an ecosystem called AGRI ELEVATE. Like these, “AGRISTACK” has to be build which immensely helpful in the financing, crop insurance, importantly creating a digital footprint for farmers

In a nutshell, if correctly implemented and supported, Agri Fintech the potential of becoming a niche sector and can pace up sustainable development, thereby building a sustainable community.

Source: Sammunati