By Vishal V
For Indians enjoying their Sunday holiday mood and stock market investors preparing for Monday’s trading session, that one speech by Prime Minister Narendra Modi struck literally like a lightning bolt. The escalating crisis in West Asia (Middle East) and the looming shadow of a potential Iran war have now directly knocked on the doors of the Indian economy.
Addressing the nation, PM Modi placed 7 key appeals before the citizens in the interest of the country. The most crucial among them being: “Do not buy gold for the next one year,” “Cancel foreign travel,” and “Start Work From Home (WFH) on the Covid model to save fuel.”
For the readers of my blog, ‘The Rhythm & Reason’, I am presenting a complete A to Z analysis here: What is the real financial calculation behind this sudden appeal by the Prime Minister? What is the strategy to save 72 billion dollars in currency? Why are jewelry and aviation stocks crashing? And why are the opposition parties calling this an ‘economic failure’?
PM Modi’s ‘7 Appeals
1. The Root of the Crisis: The West Asia War and its Link to the Indian Economy
To understand this appeal from the PM, we must first look at the global market. The war-like atmosphere brewing in West Asia (primarily the crisis surrounding Iran) has become the biggest threat to the global oil supply.
Why the tension for India?
India imports 85% of its crude oil requirements. If the dark clouds of war hover over West Asia, there is a risk of crude oil prices crossing the $100 to $120 per barrel mark. We must pay for oil purchases in US Dollars (USD). As oil prices rise, our country’s foreign exchange reserves (Forex Reserves) begin to deplete rapidly. This pushes the country’s Current Account Deficit (CAD) to dangerous levels. To protect the country’s economy from this shock, PM Modi is stepping forward to take some tough measures.
2. “Do Not Buy Gold for a Year!”: The $72 Billion Logic
The most discussed point in PM Modi’s speech, which has sent shivers through the market, is the restriction on gold. The Prime Minister has appealed, “Indians should stop buying gold for the next year or reduce it to the bare minimum.” In a ‘gold-loving’ country like India, this is an extraordinary request.
What is the ‘Forex Logic’ behind this?
1. Import Burden: After oil, the most imported commodity in India is gold. According to reports, India annually spends around $72 billion (approx. ₹6 lakh crore) of foreign exchange solely on buying gold.
2. Saving Dollars: During times of war, the country has a massive need for dollars (to import petroleum, defense equipment, and medicines). If people stop buying gold, gold imports will halt. Consequently, that $72 billion will remain in the country’s treasury.
3. Investment Alternatives: The government is indirectly encouraging people to invest in Sovereign Gold Bonds (SGB) or stocks instead of physical gold.
3. Work From Home (WFH) and Fuel Conservation
‘Work From Home’ is a phrase we had almost forgotten since the Covid-19 lockdowns. Now, PM Modi has appealed to IT and corporate companies to bring it back.
• Objective: If millions of IT employees and corporate workers avoid commuting to the office daily in their cars and bikes, crores of liters of petrol and diesel will be saved.
• Double Benefit: If fuel is saved, the volume of crude oil imported from abroad decreases. This prevents the country’s currency (Rupee) from depreciating. Additionally, traffic problems and pollution will also decrease.
4. A Break on Foreign Travel: Keep the Country’s Money Within
“Cancel unnecessary foreign travel and support domestic tourism”—this is another major appeal from the Prime Minister.
• Saving Foreign Exchange: When Indians travel abroad, they use dollars or other foreign currencies for hotels, shopping, and transit. This is also a reason for the depletion of the country’s Forex Reserve. The government’s calculation is that spending this money within the country during these times will strengthen the local economy.
5. Chaos in the Stock Market (The Market Bloodbath)
I analyze stock market movements every single day. But the scene that unfolded as the market opened on Monday was terrifying. The Prime Minister’s speech has directly struck 4 major sectors.
A. The Crash of Jewelry Stocks
The PM’s “no gold” statement has literally broken the back of jewelry companies.
• Titan Company: Shares of the Tata Group’s Titan saw a massive slump.
• Kalyan Jewellers & Sky Gold: Shares of Kalyan Jewellers and Sky Gold headed towards a ‘Lower Circuit’, dropping by 10% to 12%. Investors are anxious that the business expected during the upcoming festive and wedding seasons will now hit a roadblock.
B. Aviation and Hospitality
• With the appeal to cancel foreign travel, shares of airline companies like IndiGo plummeted.
• Hospitality stocks like ITC and Indian Hotels (Taj group) are also suffering losses due to the fear of a tourism slump and the return of ‘Work From Home’.
C. Automobile Sector
Fearing that the purchase of new vehicles might decline if people work from home, shares of Maruti Suzuki, Tata Motors, and TVS have also come under immense pressure.
6. Political Storm: The Opposition’s Outrage (Political Backlash)
While the ruling party describes the PM’s appeal as ‘patriotism’ and a push for ‘self-reliance’, the opposition parties are blasting it as a ‘complete economic failure’.
• Rahul Gandhi’s Attack: Congress leader Rahul Gandhi sharply criticized the PM’s speech, stating, “Appealing to people not to buy gold and to work from home is proof of PM Modi’s complete failure in managing the country’s economy. This shows just how fragile the country’s economy is.”
• Akhilesh Yadav’s Criticism: Samajwadi Party leader Akhilesh Yadav warned, “The appeal to save petrol indicates the government’s bankruptcy (failure). This will rattle markets further and create more panic.”
Vishal V’s Takeaway
To the readers of ‘The Rhythm & Reason’ blog and retail investors, my clear message is—“Don’t Panic”.
It is common for the stock market to overreact whenever global crises occur. The Prime Minister’s appeal is a ‘precautionary measure’; it does not mean the country is bankrupt. India’s Forex Reserves are currently in a robust state. However, creating a buffer to face an impending crisis is economic wisdom.
What should investors do?
1. Keep a distance from Jewelry Stocks: Since the profit margins of jewelry companies are likely to decrease for the next 2-3 quarters, it is best to avoid fresh investments in this sector.
2. A boon for the IT Sector?: If Work From Home is implemented, the operating costs of IT companies will drop, which could increase their profit margins. Keep an eye on stocks like TCS and Infosys.
3. Buy the Dips: When the market falls, this is a great opportunity to accumulate banking and FMCG stocks with strong fundamentals in installments (SIP style).
Indians are emotionally attached to gold. Will people actually heed the Prime Minister’s appeal and stop buying gold? Will corporate companies enforce WFH again? Is this just a temporary advisory or a warning sign of a massive impending economic crisis? Only time will tell.
Source by Google news and NDTV
Keep reading ‘The Rhythm & Reason‘ for accurate analysis of every major economic and political development in the country.
Disclaimer: The financial analysis, stock market trends, and political statements provided in this article are strictly for educational and informational purposes only. ‘The Rhythm & Reason’ and the author are not SEBI-registered financial advisors. Stock market investments are subject to market risks. Please consult your registered financial advisor before making any investment decisions.