India, encompassing society, economy and markets, is indubitably passing through a period of crisis. However, the current phase of crisis is not the first, not the last or the worst ever. In fact, since gaining geographical independence in 1947, the country has consistently been under crisis of all sorts with some brief periods of respite patched in between.
The current down trend in Indian socio-political and economic spheres presents an opportunity, in our view, to make a holistic assessment of the six decades of progress (or otherwise, as some would like to argue) and make necessary mid course correction.
From an investor viewpoint, it is important to assess whether there is anything structural in India story or it is all cyclical. We believe that so far India has been a cyclical story in all respects and we have completely failed in evolving any structural socio-political and socio-economic model that would put Indian economy on a sustainable growth path. Besides a few random instances of excellence like space research, there is little evidence of the force that is needed to catapult us in the higher economic orbit.
Speaking specifically about financial markets, in our view, Indian market behaved like a classical cyclical business. For example, consider the following:
- Since 1989 the stock market has seen strong bull phase only during 7year period between 1989-1992 and 2003-07. The shallowness of bull phases could be assessed from the fact that 2002 NIFTY closing level was lower than 1992 and NIFTY has never closed near the 2007 closing level since then. Rest 16years have been of moderate to severe bear phases.
Not more than 100 companies would have created net wealth for common shareholders over past twenty five years. To the contrary, the number of corporates responsible for destroying common shareholders’ wealth is much larger.
- At micro level, many of the deep cyclical businesses, like power and construction, have been popularly marketed as structural growth stories. Consequently, the wealth destruction by mistakenly called blue chips like BHEL, DLF, JPA, Suzlon, ABAN etc. has been excruciating.
- More recently, the Congress led UPA-II government (2009-2014) has been criticized for ‘policy paralysis’ leading to halt of growth momentum seen during NDA (1998-2004) and UPA-I (2004-2009) periods. The critique is perhaps based on the assumption that high growth seen during 2004-2008 was structural and hence sustainable. Whereas, the macro data highlights otherwise.
In our view, the genesis of the current crisis could be found in the piecemeal reforms and expansionary policies seen in the wake of economic sanctions post nuclear tests in 1998 and global slowdown in 2001-02. The UPA government perhaps has just perpetuated the malaise.
In coming days, we shall discuss these issues in some detail.
Thought for the day
“Sometimes you mistake sunset for dawn.”
-Unknown
Word of the day
Finagle (v):
To trick, swindle, or cheat (a person) (often followed by out of).
(Source: Dictionary.com)
Shri Nārada Uvāca
If death is an occupational hazard; who is martyr?
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