Can an explanation be found for the behavior of Indian stock market over the last month? As a keen, and practicing, market analyst (and participant) over the last 10 years, let me state that I have never before endured anything even closely approximating what has been witnessed in India. Not the Kuwait war crisis, not the Mexican devaluation, and not even the East Asian crisis of 1997-1998. Unusual market behavior, both up and down, is intrinsic to any market. The boom in software, and the subsequent bust, are extremely “normal” events. What is not normal, by definition, is if there is no explanation for a market to go up, or down, by about 20 percent in a short space of a few weeks. Which is what has happened in India. And an attempted explanation of this bizarre market behaviour follows.
The Indian stock market is in the middle of a meltdown. The world markets are showing signs of recovering, and could stage a significant short-term rally, but no relief appears in sight for India, and the Sensex.
India is agog with the sound of state funding of political parties. As Indians struggle with corruption in their daily lives, and read about glitterati-neta corruption in the newspapers, the panacea call (especially from the politicians) is: let there be state funding of elections, and voila, there will only be minimal corruption. Respected politicians, including the normally sensible Jairam Ramesh (“A Level Paying Field”, India Today, April 9), have latched onto an idea whose time they say has come. Recourse is made to “public good” arguments to buttress the demand for politicians to get even richer at the public expense. Little thought is given to the obvious conflict of interest here – state funding will only support established parties and dilute competition.
A decade after the initiation of economic reforms, the former Prime Minister, Mr. Narasimha Rao, gives his reflections on economic liberalisation, and its future in India. These musings are contained in three articles, published by the Indian Express, April 6- April 8. His ramblings clarify at least one point – he cannot be credited with any parentage to the reforms he is accused of initiating. It would be highly misleading, as several of us have been doing, to call the economic reforms of the nineties as the Narasimha Rao-Manmohan Singh reforms. As Mr. Rao’s “reflections” make clear, the reforms had only one author – Manmohan Singh. Mr. Rao apparently was on board for political reasons, and being the good politician, he would do anything to keep his gaddi. This is supported by the observation that once Mr. Rao was able to obtain a majority in parliament, economic reforms became a liability and were given short shrift. So it wasn’t ideology, it certainly was not a change of a socialist mind (as apparently it was with Mr. Singh), it was plain simple political survival. How much better India would have been if Mr. Rao actually believed in any of the economic reforms his name is erroneously associated with.
Every newspaper, every newsmagazine, and almost every journalist, has been led by the Indian government, (through its regulatory watchdog, SEBI) to believe that the erstwhile whiz-kid broker, Ketan Parekh, has done a grievous wrong, and grievously shall he pay for it. In a moment, perhaps of extreme despair, the Finance Minister, Mr. Yashwant Sinha, also stated that market manipulators (read Mr. Parekh) should be hanged.
“Stop it – I have seen this movie before!” Last year, at almost this exact same time, all analysts, as well as journalists, brokers, house-spouses, and US senators were speaking with the authority of an economics Ph.D, and with one voice: productivity growth in the US justified sky high Nasdaq prices, and the business cycle was a thing of the past. In other words, wishes were horses and everybody, but everybody, was both an expert on the economy and the stock market. And if proof of expertise was needed, there were genuine, albeit paper, profits.
The Indian stock market has tumbled more than at any time in recent memory. At its worst, the decline was about 50 percent from its highs. This was the largest decline of any broad based (tech and non-tech) index in the world. And it occurred after, and despite, what was universally acknowledged to be the best budget since Manmohan Singh’s budgets of a decade earlier. If fundamentals are of any relevance to stock markets – as they should be – then the behavior of Sensex, post-budget, cries out for an explanation. And simply saying that the Indian market was following bearish world trends just does not wash. Because by declining the most, we far exceeded, by a non-trivial margin, any derived trend.
For a long while, certainly the last 15 years, Indians had resigned themselves to the belief that corruption was pervasive, and that the major practitioners of it were the politicians and the bureaucrats. Now, of course, it takes two hands to clap, one to give the gift and the other to clutch it. Industrialists were often in the front of the line of givers, as they wanted one policy distortion to be replaced by another distortion more favorable to them. This influence peddling involved the collusive decision of netas and babus, and everybody, excluding of course the common citizen, lived happily seemingly forever.
No matter what criteria is used, Mr. Vajpayee’s invitation to General Musharaf to discuss Indo-Pak relations, passes the genius smell test. In words that came from his own heart, rather than the stone of a diplomat, Mr. Vajpayee made clear that he was going for broke – and going for surgery – and going for a future to be manned by individuals born after the partition of 1947. In this future, the glory of a united India was only in the memory of those scarred by the pains of partition. It is important to recognize the origins, and the reasons, for this pain; but equally important to ignore the perspective of the dead.
No matter what criteria is used, Mr. Vajpayee’s invitation to General Musharaf to discuss Indo-Pak relations, passes the genius smell test. In words that came from his own heart, rather than the stone of a diplomat, Mr. Vajpayee made clear that he was going for broke – and going for surgery – and going for a future to be manned by individuals born after the partition of 1947. In this future, the glory of a united India was only in the memory of those scarred by the pains of partition. It is important to recognize the origins, and the reasons, for this pain; but equally important to ignore the perspective of the dead.
