Portfolio Management Service

Farm Laws Impact In Indian Economy?

PM Modi announced the rollback of the three farm laws on November 19, after almost a year when they were passed by the Parliament. This move signaled a sense of disbelief in the share market as Overseas investors were already in a cautious state towards India’s over-optimistic market conditions.

Indian equity benchmarks have fallen almost around 2% post the announcement and have been struggling to retain current benchmarks as the selling continues to happen across sectors as weak global cues, and repeal of farm laws weighed on investors’ sentiment.

Industries Losing Their Share Of Growth

The repeal of the agriculture laws has a predominant impact on the PSU stocks. It is believed that repeal of the farm laws has brought negative investor sentiments towards FMCG sector companies who were supposed to be the biggest beneficiaries of the law. Also, the agri-tech startups and organized players that connect farmers to agribusinesses, food processors and exporters, agri-warehousing companies, logistics operators, and cold storage providers are witnessing pressure since they were also going to transcend their business models with the change. This move may hit the sourcing and expansion plans of food processing companies. Some companies interested in entering agriculture and allied sectors were planning new investments in collaboration with local and global partners and must again reflect on the situation according to the current situation.

India’s Food processing industry receives less than 2% of FDI, which is ~$1.2 billion in absolute terms. The new farm laws would have stimulated this to an estimated $10 billion in a year after implementation. Now, all these may become a distant dream and an increased burden on Government fiscal deficits.

Equity Investors Keeping Their Fingers Crossed

Many experts believe that this downfall is temporary as the market had already considered its shock when the stay was placed by the Supreme Court on the implementation of these three laws in Jan-21 itself. However, some downfall is still expected as a major reform law in the agriculture #economy has been formally rolled back. The economic stimulus from the same will now not be realized. Global sentiments have also undergone a shift towards India which can be witnessed with net FIIs sales over the past few sessions. Repeal of farm laws just pushed the fear of Indian & Overseas Investors over the edge and market corrections are now happening.

Do You Think That Timing Of The Government\’s Decision To Repeal Farm Laws Is More Political Than Economic?

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