pancha-tattva talk…as on 21st Sept 2001


Some of you would take interest in what I have to report to you and some will laugh it away or laugh at it. What I am reproducing is a piece of writing dtd 21/09/01 and was titled ‘Nifty Down To Almost 8 Year Low’. This was naturally after 9/11. I was then slightly upset by Nifty’s weak behavior although the environment seemed to conducive for growth. This was an impression I was carrying about the economy and market but had not tried to see it specifically why or what formed the basis for the feel good factor. To look at the whole matter I decided to see the tenor/import of each of the matters that form a nearly wholesome macro environment (India related). This is what you are going to read below now and you would be amazed that the whole talk seems to be related to the day today :

‘The unintended fall out of NY Twin Tower strike has been for the Indian Stock Markets to dip to almost eight year low. During these eight years a lot of improvement in trading system has been brought about. It is almost at par with the best in the world. Also during last eight years ultimate measures carrying immense value for the Indian economic system and industrial sector have been taken. Leaving apart what has happened in specific industrial sectors and companies, if we simply recount the macro level major reforms a scene, so beautiful, emerges that can only spell bound.

The list will unfold like this:

I) Interest rates domestically have been brought down to quite reasonable level when good companies may raise money from open market for medium and long term @9pc including costs.

II) VRS of white collar and blue collar workers have been popular.

III) Licencing and quota restrictions have completely been removed.

IV) The weaker players have been wiped out leaving economies of scale and technology orientation to take front seat in development of industry.

V) Mergers and aquisitions and out right sale of facilities have become  quite feasible and popular.

VI) Capital account movement of Foreign Exchange is now possible.

VII) Listing of shares in US and UK bourses is on, besides, raising of capital in equity as well as debt form, from overseas markets is routine.

VIII) Exposure of our technical personell to technologies prevelent in other advanced countries is also quite common.

IX) Communication network is working at 90pc efficiency compared to developed countries.

X) Roads are getting better by the day and commercial vehicles of every capacity for long hauls and short distance movement are all being produced within the country.

XI) Octroi and Sales Tax reforms have gone at least to the half extent.

XII) Language barriers have come down due to exposure of  large population to Hindi and English.

XIII) Privatisation of education ensures spread of training in new fields and relevent subjects.

XIV) Governance is lesser.

XV) Inflation is within bounds.

XVI) Distribution costs have come down.

XVII) Agriculture is taking care of food needs and cash-crops are aplenty to provide feed stock to industry.

XVIII) Efficiency of capital is improving and in turn labour has also become more productive.

XIX) Population is growing at a slower rate (actually India requires at least some growth in population for faster economic growth).

XX) Urban land is no more under cieling laws.

XXI) Women are getting in to larger economic activity as their time is freed from domestic chores due to gadgets being cheaply available.

XXII) Consumption is no more a sin and adds to demand.

XXIII) Property prices are reasonable.

XXIV) Terrorism is restricted to fringes of the country.

XXV) Deprecialtion of Rupee has brought about automatic shelter for the domestic industry.

XXV) Personal Income Tax and Corporate Tax are at reasonable level, dividends are tax free in hands of receipients.

XXVI) Excise Duties. Are no more prohibitive.

XXVII) Air-ports and sea-ports are quite modern now.

XXVIII) Venture capital is available and 100pc foreign ownership is permissible in listed companies (select sectors) besides FDI route.

With twenty eight counts of positive development over last eight years why should the index suffer so much is any body’s guess. There are some dark areas and require urgent attention like our railways are failing to deliver, the power sector is in a mess and the corruption is eating into developmental resources of govt besides making things difficult for foreign party to do business in India. We can well estimate the positives far outweigh the negatives yet our berometer is showing that the times are worst for industry and investor.

By way of explanation I may suggets that what the barometer (stock-markets) is showing is wrong ie actually the health is in pink. The reading should show it at 1700 mark, if the reality has to prevail. I may admit that for this to happen a moderately better dose of inflation is required. Better still will be a stiff dose but only in a short run. If we want to quantify upping of inflationery pressure to around 12pc per year for two years, would be healthiest. This is necessary for two reasons, one that last decade has been tough for borrowers and wonderful for lenders, the other is that wheels of economy require some lubrication through monetary expension which will take care of easing the pressure on banks and development finance institutions.

Our industrial future is quite secure, come what may, no gain saying that democracy has to keep standing eract.’

The above reads as it is for today, the only thing is that democracy does stand more firmly now. So this is another good thing. It was the time after 9/11 incident in US and now is the time after big US financial crisis. This means that when US is in trouble we get scared of investing in market as well as do the FIIs and this makes markets plunge unduly. When the fear is gone the return brings more money in than had moved out. This paves way for markets scaling higher hights as was the case between 2001 and 2007 (six times gain). Facts are stranger than fiction, if we assume it is a fiction the market will rise beyond the previous peak than fact may see it go high beyond 10000 Nifty mark or 30000 Sensex mark. Whatever way we look at it, it becomes imperative that we remain invested. Budget event on Monday may temporarily give different color but basic strength remians.


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