The 20k fiasco, again

Let us not be moved by sudden Western euphoria

 Let’s do some idle thinking on 20k. Stock markets aren’t the most dependable of institutions around the world, but this is where you get indicators of where your country is going. If lessons have to be taken from the 2008 fiasco one must not read too much into this rally. It’s a question of hot money and hotter decisions, and while it certainly reflects on the general health of a nation’s wealth, the same hot money would run to Russia, for example, where P/E ratios remain extremely favorable. There won’t be a second thought as to the general socio-political health of the nation.

 I feel it is good the rally hasn’t happened in the blue chips. Domestic investors, traditionally (except for some Harshad Mehta and Ketan Parekh days) have been careful in pushing up or hammering down a stock. These are domestic jewels, and rampant speculation can only harm or even kill the goose that lays golden eggs year-round. Our own investors, retail or large, do understand that.

 Foreign investors, however, will not carry the baggage of nationalism. When the going is good, they will invest, even if its sub-prime, and squirrel out as much as possible in quick time before the exit. I feel there was no need for the finance minister to issue statements of satisfaction over 20k. in my opinion there should have been studied silence from his end. The RBI Governor D Subbarao has been very pragmatic in his approach, especially in the tweaking of the interest rates which he has been adjust ting for the last several days.

 This is a world yet to recover from the recession, and however much insulated this economy may have been so far, a surge of  $ 16 million hot cash is surely not going to do much good for the country’s economy in the long run. Domestic investors have started profit-booking, some eroding value from blue chips, and RIL’s treasury shares may be sold. This isn’t good news on the face of high global oil prices. There is also this pressure from the government to sell fuel in the country at pre-determined prices, all looking ahead to the elections.

 These may just be variables on an FII chart, but are broader issues as far as our country is concerned. I would not feel comfortable with a mid-cap stock shooting through the roof. There aren’t enough fundamentals to back it up. Speculation has to be within acceptable price bands, and within acceptable business criteria.

Let us look back at the image of the country -- in the index of doing business, India ranks poorly, in the index of regulatory hindrances, India ranks poorly. There is acute scarcity of infrastructure, and political imbroglios are adding to the mess. Natural resources mining has become a political hot-potato, and mega industrial projects are tied up in tight red ribbons. Corruption is rampant and there speed and quality has been long abandoned for foul consideration.

I feel happy that domestic investors have learnt to be patient and not be moved by Western euphoria. Let those who speculate in troubled waters perish in the same. We need our waters free from such pollutants. We need FDI, solid gold-based futures, for us our children and for the immediate world around, in general.

Let’s walk towards that.