India

Solomon’s Verdict : Why Indians Have Surprised

Sanjeev

Sanjeev

If it’s India, expect ordinariness. We get excited about a game nobody plays. We love Bollywood and Kollywood, we make stars out of people like Chiranjeevi, NTR, Jayalalitha, and whatnot…we have no heroes and role models who have achieved anything meaningful against world competition. Any Indian teenager would rather marry SRK than Vishwanathan Anand…and so on!!

Declaimer: This article written was originally in May 2009 and some of the data points may be outdated.

We are the first people to self-congratulate ourselves and announce greatness at the faintest sign of some (economic) outperformance. We are great because we are so poor that we can’t get poorer, so we must be a great nation to be still growing in a world that is facing disaster.

We are great because there are so many of us, this rag-tag bunch of slumdogs, that we celebrate a foreign movie that lampoons our existence and even our dreams; we count its achievement as our award. And the list goes on…

There is much about India to be ashamed of

There is much about India to be ashamed of. Mostly, I keep these feelings private, because it is ‘unpatriotic’ to have a poor opinion of your own. But I remain an observer of human frailty, and cannot but notice the difference in human, corporate, institutional or even national behaviour and culture.-

Culture is nothing but repeated (and widespread) behaviour, so you cannot blame my apathy when the great Indian Jamboree rolls on (no, not the IPL; the other festival that adds 0.5% to our GDP growth rate). But I DID go and vote, not because I lost someone I know at the Taj Hotel; I just went because my driver came and told me that it was easy and my name was really there on the electoral rolls….

I voted Congress, perhaps because Mr. Sandeep Dikshit was at No.4 on the list, and I couldn’t be bothered to read the rest. Maybe others did the same (I have to check whether he won).

So I wasn’t prepared for Dhirendra’s call, asking what I thought about the world. I thought he was joking; he knows I don’t think about the world any more. I am too busy surviving, hoping that people are still buying light bulbs and pining for next month’s salary…

The Great Indian Electorate actually BEHAVED. One, they actually went out and voted. Two, they decimated a lot of people: old guards who had got so entrenched and arrogant, that they took us poor Indians for granted.

In Bengal and then Kerala, they left the Left, soundly dumped in favour of just anybody (else) they could find; even Mamata was better, they felt. In the BIMARU states, they broke old power structures. The Muslims have gone back to the Congress, deserting their discredited and corrupt alternates. Why pay Rs.20,000 cr to these middlemen, who will anyway sell their support to the Congress? Might as well go direct to the Congress; reduces the velocity of money, but increases the savings rate.

The BJP lost Rajasthan, the one state they thought they would not. All in all, you actually saw intelligence everywhere, as if the great Indian electorate had really turned great.

India really is one of the few countries with some latent economic demand, household debt capacity and a supply shortage. With $ 8 trn available and looking for somewhere to go, this is one of the countries that beckons.  FDI, portfolio flows and even overseas lending will increase, as expectations of a Narasimha Rao-like courage on reforms will surface.

This time, there is nobody to hold up reforms (except perhaps Mamata, who can be mollified by sacking the CPM Govt in Bengal on some pretext or the other).

Expect action in power (i.e. electricity generation), alternate energy, rolling back subsidies in various areas, some aggressive stimulus packages. Liberation in Insurance, banking and markets. A sharp focus on infrastructural investments. Expect core industry to get a bailout package.

In the short run, the market will see an immature rally, a selloff, and a minor trough. Not much upside though, unless there is a huge inflow from abroad. That should take some time in materialising. Mostly, I would bet on a range-bound movement, about 20% plus or minus. But a reallocation from the old favourites: real estate will not come back so soon.

The Rupee will definitely see some strength, only partly because of generic Dollar weakness. Unfortunately, almost all the trends I have mentioned are already in place, so you will just see an acceleration followed by some profit-booking. So don’t do anything new, if you haven’t already bought into these trends.

Yes, the oversold stock-specific stories will not see their earlier bottoms again, so look for specific stocks that have been beaten down excessively. Just half your earlier P-E target, just to be safe (the risk premium on Equity Capital has doubled). Target a Market P-E of 15-17, and holding cash should not be as difficult as in 2007. Nobody is getting rich anymore…

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