Wor(l)dy Wise……

Jayant Pai | jayant@ppfas.com

I saw a programme on a business channel a few days ago. It was an event organised by a brokerage house, wherein three eminent stockmarket personalities were the panelists.

It appeared that they had only a one point agenda : “Talk up the markets”. According to them, India was infallible and the future could not be brighter. Some of the points that they mentioned are contained below. More than the contents, it was the smugness in their tone which was disconcerting.

  • India would be a USD 5 trillion economy over the next few years. Growth of 9-10% p.a. was a given….Further, assuming a market capitalisation/GDP ratio of 1:1 our markets could easily move up three times from here.
  • India’s savings would cross the USD 1.50 trillion mark. There would be such a wall of money that we would fall short of financial institutions to manage the glut (Wow. This is the ultimate statement). After that there were statements like “Even if 5% of such savings comes into stocks, imagine the impact on stock prices” and “Indians will have no other option but to invest in stocks”.

First, stockmarket performance is more related to the performance of the corporate sector and less to overall GDP growth. Second, relying on Indian investors to invest out of a sense of compulsion, irrespective of valuations, is underestimating their intelligence.

They then stated that the USA currently saves less than 1.2 trillion USD and that meant India’s savings would outpace the USA. This statement will hold true if the current high savings rates are maintained. But that is a big IF, considering that the credit-culture is taking firm root out here.

  • The topic then shifted to infrastructure spend. A speaker quoted that in the year 2000, it was predicted that India’s infrastructure capex would amount to 6% of the GDP in 2010 but current statistics showed the figure actually came in at 8%. This was touted as a plus point and a key enabler to India achieving double digit GDP growth rates.

    However, they neatly skirted the question of the outcome of such spending? Are you and I able to see the benefits? At least in the urban areas, we are having to put up with decaying infrastructure, shoddy implementation and padding of costs. I think these speakers should get some feedback on the near inhuman conditions in which their own colleagues (blue collar and lower management workers) or domestic help travel to work and their living conditions?

It is very easy to sit in five star hotels and talk glibly about how India is superior to other countries and how we can one day match China. China has succeeded in radically reducing poverty levels over the past two decades. On the other hand, we are only seeing an increase income inequalities. It appears that India is slowly being split into two : One, which lives in style (including custodians of public money such as fund managers), talks big numbers and virtually condenses everything into excel sheet projections. The other are the teeming millions beset with the struggle for survival and battling corruption, terrorism and other problems considered too mundane by the first segment. This segment is being denied basic rights such as the right to education and decent healthcare.

India features at the bottom of the table in several human development indices, be it nutrition, child literacy or infant deaths. Only some African countries and low-income Asian countries feature below us, hardly the sign of an emerging superpower. If these Indians at the bottom of the pyramid are polled, their viewpoint would be the exact opposite of the “opinion makers”.Inequality exists in all countries. However, as is everything in the case of India, the gap and the sheer numbers are frightening.

I am not making a case for the socialists through this blog post. In fact, as a regular investor in stocks and equity mutual funds over the years, such “talking up” ought to be music to my ears and there is a temptation to blindly believe it. I am also not specifically targeting this particular event. Since the bull run began many market “experts” are involved in talking up the markets. Maybe they unconsciously do this owing to the “Endowment Effect”. They take our growth for granted and (maybe) believe that growth will take care of all of India’s problems. However, at the back of my mind there is a very real fear that if we do not address social inequalities our investments will suffer drastically (unless you believe that equities will function in a vacuum).

Maybe enlightened self-interest is the answer. In doing so, various stakeholders will act in the overall interest of society as their own well-being will depend on that.

I look forward to your thoughts on this subject…..

4 Comments

  1. Brave post Jayant, coming as it does from a “stockmarket wallah”:)…verbally incontinent and historically illiterate market folks are the unfortunate detritus of great bull runs, and this time it’s no different (though, of course, this is an act, as they just are “talking up” their book). Would really be fun to compare what the leading lights were saying in the earlier run-up to 21k on the Sensex, and now…not that I don’t think this rally has legs, but about the only thing that travels in a straight line is an ECG monitor attached to an unfortunate heart patient who has departed to that great broker of all life, up in the sky.

  2. Hi Jignesh,

    Thanks for your hilarious insight.

    Yes. The rally may have legs but that is due to foreigners who live in nice places like Singapore. They thus enjoy the best of both worlds. The locals have missed out on the rally maybe because they are too busy struggling for survival and in trying to avoid an untimely “Flatlining” of the ECG.

  3. Brilliant article.. I really liked the part where you said that people have started to consider a 8-10% percent growth rate over the next 50 years as a confirmed fact rather than as a projection

  4. Dear Hersh,

    Thank you for reading the post. Yes. This tendency to take things for granted is a dangerous phenomenon.

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