Vijay Kumar Gaba

Our Children must be given strong reasons to believe that if central Asian and European invaders did not plundered us, we could have created much better roads, railways, ports, monuments and social infrastructure what they created to further their objectives of plunder, oppression and exploitations. 

The benchmark equity indices in many global markets are presently positioned close to their all-time high levels. The equity shares of new age companies, with relatively untested business models, are commanding prices, which could be termed “obnoxious” from the view point of conventional valuation methods. The global debt yields are staying obdurately low, despite higher inflationary expectations and liquidity contraction talks. The market value of cryptocurrencies, one of the youngest asset classes, is also more than US$2trn.

In these circumstances, “Risk” is naturally the most talked about, and understandably the most ignored, term in the financial markets. All market experts are highlighting the urgent need to manage “Risk” for investors.

Investors’ survey on understanding of Risk

A quick survey of household investors’ perception about the “Risk”, and their methods of managing “Risk”, however highlights that “Risk” may actually be one of the least understood, though most talked about, terms amongst these investors. A significant number of such investors appear to be carrying serious misconceptions about the risks involved in investing activities, especially equity investing.

The following observations from the survey are particularly noteworthy.

Buying Options is perceived least risky

“I take calculated risk in the market. I only buy options. The loss in options is limited while the gains are unlimited.”

This is the most noteworthy comment from the survey. This implies that people may be buying naked options, fully knowing that they can lose 100% of their principal amount, if the option expires out of money by the end of week/month. They are “investing” in equities, just the way they would buy a lottery ticket – risking 100% of their capital if the final outcome does not match their wager; sincerely believing that they are taking “minimal risk”.

Volatility of markets is perceived as the most important risk

The most seasoned participant in the Survey commented, “I invest only in quality companies. There is no risk in such investments. The only risk is market price volatility, which I can easily take since I invest for long term”.

Almost every respondent in the Survey believed that volatility in the market price of shares and market manipulation are the most important risks in equity investments. A significant proportion of the respondent believed that volatility is the only risk, and they do not mind taking it.

A deeper probe however indicated that a large majority of investors associate the “quality of business” with the returns they have personally made in the particular stock. Reliance Industry Limited and ITC were the two stocks that attracted divergent opinions. It appears equal number of people find these two stocks “poor” and “good” quality, depending upon when they bought it and what have been their returns from these. Many respondents cited some small and microcap companies as “good quality”, since they have made brilliant returns in these lesser known stocks.

Besides, the market volatility risk, market manipulation risk appears to be the most popular risk factor amongst investors. Most of the respondents sounded convinced that “operators” are able to manipulate the prices of stocks “at will”. Some of them even sounded skeptical, believing that the over regulation of market functioning is actually helping these “operators” in their activity. A significant proportion of investors strongly believed that the market volatility is staged by “operators” to deceive the gullible small investors, implying that market volatility is mostly an integral part of the market manipulation exercise of the unscrupulous elements.

Only a tiny percentage of respondents mentioned the business risk (company specific) as a major risk element in equity investing. About two third of the respondents were not aware that companies like Aban Offshore, Suzlon, JP Associates, Reliance Infrastructure, Reliance Capital, Reliance Communication, Jet Airways, OBC, SCI, Unitech, and BHEL etc. were part of the benchmark Nifty 50 index in 2007, and hence prima facie qualified to be included in “quality portfolios”. Most investment gurus and revered fund managers owned some of these names during 2007-2016.

Volatility may no longer be a “major risk”It is pertinent to note that the implied volatility (a measure of volatility used for derivative pricing) has persisted at low level in past one decade; though some occasional spikes were witnessed in 2013-14 and 2020.

An analysis of historical volatility (daily change in the Nifty 50 index) also supports this observation. In past 14yrs (since August 2007), there have been 154 daily moves of 3% or more in Nifty. Out of this 109 moves occurred during 2007-09; only 21 moves occurred in next 10years (2010-19) and 24 moves have occurred since March 2020 in the wake of pandemic. The number of large moves on both the directions has been almost the same. The risk of market volatility has obviously reduced materially in past one decade or so, primarily due to the stricter regulation and margining norms post global financial crisis.

Between the years 2008-2016 there were three major corrections in Nifty (25% or more). On each occasion, Nifty took more than 13months to recoup the losses incurred during correction. However, in past five years there has been only one draw down of more than 25%, and that too has been recouped in less than seven months.

…whereas the “business risk” may have spiked higher

On the other hand, increased global competition, accelerated technology evolution, and transformative regulatory changes, have led to tremendous rise in the business risk. More mid and large sized businesses face the risk of redundancy and obsolesce today, than ever. This risk was mostly associated with the smaller and weaker businesses in previous decades.

The pandemic has in fact enhanced the business risk in numerous businesses like transportation, hospitality etc. The commitment to climate change may itself threatened the sustainability of many businesses that rely on conventional fuels and technologies.

Diversification is best tool to manage risk

It is conventional wisdom that all eggs should not be put in one basket. In the principles of investing, diversification is used as a key risk management and return optimization tool.

One of the key observations of this Survey was the inadequate awareness of the participants regarding the concept of diversification. Most participants responded by saying that diversification means spreading the capital over a larger number of instruments, e.g., stocks, mutual fund schemes, etc. A diversified mutual fund scheme was invariably accepted as adequate portfolio diversification.

Buying units in five large cap diversified equity schemes of different mutual funds, having mostly identical portfolios will not achieve much diversification.

Risk tolerance

For example, take the example of the following three hypothetical investors:

Risk tolerance vs Age of Investor

Take example of these two investors:

Investor Mrs. Singh is 75yr old widow. She has 75% of her Networth invested in rent yielding good commercial properties. Both her children are well settled in life. She lives in her own house and enjoys good health.

Investor Mr. Rajan, is a 36yr old Investment Banker. He has good income, but uncertainties relating to his job are high. He suffers from diabetes and hypertension. He has home loan EMI, auto loan EMI, life insurance premium and health insurance premiums to pay regularly. He has a 3yr old child who needs to be admitted to a reputable school this year.

Obviously, the risk tolerance of Mrs. Singh is substantially higher than Mr. Rajan. But in reality, Mrs. Singh’s portfolio mainly comprises of bank deposits, debt mutual funds and FMCG & IT stocks that were purchased good 25-30yrs ago and have grown in value substantially; whereas Mr. Rajan regularly invests in small and midcap stocks with multibagger return potential (usually based on the tips he gets during the course of his work); and has an SIP in Nifty ETF (about 30% exposure to BFSI sector same as his employment).

Risk tolerance vs asset allocation

Investor Ms. Bansal has 67% of his Networth invested in stocks of her employer bank. She lives with her old and ailing parents in a joint family house. She pays EMI on car loan she took last year

Investor Mr. Mehta has 92% of his Networth invested in the equity of his own pharmaceutical business, which is well established and growing at decent pace. He gets very good salary and dividend from the company.

Asking Ms. Bansal and Mr. Mehta to make any further investment in equity may not be appropriate in the circumstances.

Asking Ms. Bansal to invest in debt funds with high exposure to financial sector would add material risk to her portfolio. Even making fixed deposits in the bank she works with would add material risk to her portfolio.

Mr. Mehta does not need any regular income. He already has 92% allocation to equity. A part of his balance Networth may best be parked in liquid assets that may be converted into cash immediately, should an emergency arise. The rest he can afford to invest - as angel investment, venture capital or private equity – in the healthcare ventures which he understands the best.

Risk does not mean probability of loss

For most investors, the risk is synonymous with the probability of loss. This in my view is a misconception, which primarily originates from the common tendency of not defining the investment objectives.

Focusing on only the safety of capital, usually distort the entire risk management process. A good risk management plan must address all the three dimensions of the investment objectives of an investor, viz., Safety, Liquidity and Returns (SLR).

Safety: The risk management plan must aim to minimize the probability of the loss of capital and/or returns.

Liquidity: The risk management plan must ensure the possibility of liquidating the portfolio assets at optimum cost and in minimum possible time.

Return:  The risk management plan must rationalize the return expectations of the investor, and ensure that expected returns are commensurate to the risk tolerance limits of the investor. Lower the tolerance, lower must be the return expectations.

Let me correlate this to the following very common and frequent investment advice one would read/listen on media.

This is indubitably a brilliant piece of advice. However, it may not suit every investor, for different investors invest with varying objectives and timeframes in mind. Besides, they may have different temperament and risk tolerance limits.

Investors who did not manage the liquidity risk well and were forced to sell at the bottom cycle, shall never be able recoup their losses.

Do note, half the bankruptcies across the globe may be occurring to failure in managing the liquidity risk.

Regulation of Risk

The market regulators are concerned with protecting the interests of the investors, orderly functioning of the markets and development of the markets. The objectives are achieved by a employing a variety of tools, e.g., ensuring full & fair disclosure of information to all market participants; prevention of unlawful and fraudulent activities in market; prevention of insider trading; creating reserves to limit the contagion effect of defaults; ensuring a efficient & secure clearing and settlement system; limiting excessive speculative activities; ensuring capital adequacy of the participants, etc.

It is critical to note that the Regulator is concerned with the systemic risks in the market only. They do not address any other risk that may be involved in the investing process. Some investors seem to be nurturing an illusion that it is the duty of the regulator to manage all the risk for them. They do not even mind holding the regulator accountable for the failure of businesses and market volatility.

Contrary to the popular perception, the job of the regulator is to augment the risk taking capabilities of the market participants rather than stifling the legitimate risk taking.

No flirting, just marry the Risk

“Risk hai toh ishq hai”, a famous dialogue from a popular TV series made on the life of infamous investor/trader of early 1990s, seems to have become anthem of many young (and some not so young) investors in the equity market. These investors many a times are mistaking their gambling instinct with their risk tolerance. They flirt with equity stocks in the anticipation of getting some quick gratification; and not surprisingly, often end with substantial losses. These investors should rather spend some quality time understanding the risk in investing and marry the risk by imbibing it in their investment plan and strategy.

 As we celebrate the 74^th anniversary of our independence from the British rule, we appear to be even more resolute in our persistence to deny some of the unpleasant facts, that allowed Europeans to conquer and brutalize ancient and wealthy civilizations, such as ours. We refuse to accept the answers and explanations to the uncomfortable questions, that are relevant today, more than ever. For example, consider the following:

1.         How did Europeans, whom we believed to be primitive, become so powerful in the Middle Ages, especially 14^th and 15^th century, that they were able to conquer and enslave ancient civilization which had mastered art, science, mathematics, and philosophy?

Most of us refuse to acknowledge, it was the Renaissance, total break from the past dogmas and acceptance of a new paradigm, that helped Europeans reinvent themselves as a great political, economic, and scientific power that shall rule the world for many centuries and continue to materially influence it even today when their physical rule has ended.

It was the resolve to, inter alia, confine the power of the Church to the matters of religion; bring the art out of paintings on tall walls of Churches and Palaces on the street, in the realm of common people, by constructing larger than life liberating sculptors on the “ground”; add hitherto prohibited colors to the art; allow students to question the teachers; liberally welcome and adopt the knowledge from foreign cultures, including number system developed by Hindus and evolved by Arabs; venture into far off seas; allow the women equality that unshackled the Europeans and allowed them to conquer the world.

2.         Why, even after 74years of the end of, what was one of the most exploitive and brutal colonial rules, the legacy of British rule is not only surviving but thriving in India?

The policy makers and businessmen in India still prefer the same colonial economic model which British used to enrich their less endowed lands at the expense of richly endowed colonies; our politicians prefer to act and behave in the same manner as the European feudal lords would do in 16^th Century; and divide and Rule is still the most preferred political strategy.

3.         Why do we as a society appear to be suffering from a bi-polar disorder?

On one hand we aspire to be the great power that once dominated the global civilization through indigenous industry, art, literature, science, philosophy and spirituality for a significant part of the human civilization; while on the other hand we prefer to emulate the relatively nascent western cultures in every aspect of our life, including governance, education, culture, food, etiquettes and even personal relationships.

We cannot even accept that formal attires of Europe (Jacket, Pants, Neck Tie, non-cotton skirts and blouses etc.) and Central Asia (Long coats, Sherwani, overall cover ups like Burqua) is suitable for extreme climates and is mostly unsuitable to Indian climate. Adopting this as our formal work place and social attire we may have created avoidable demand for millions of tonnes of air conditioning, and added to warming of overall temperature.

I regret to note that today my social media timeline is full of signs that indicate to our dismal state of denial. It highlights that freedom is something that we really may not be wanting.

The government has notified 14^th August as “The Partition Horrors Remembrance Day”, on the 75th Independence Day. This is a clear signal that we do not want our predominantly youth populace to be free from the pain, misery and failures of the past. It is pertinent to note that less than one third of the Indian population directly suffered the horrors of the partition. One must be at least 5yr old in 1947 to remember the horrors suffered during partition. I am sure only a few thousands of those who are 80yr old and suffered or witnessed the horrors of partition may be physically alive today. Why do we want to enslave 1.4bn people to the thoughts of the horrors of partition, is beyond my comprehension!

A judge in the Indore Bench of Madhya Pradesh High Courts, recently observed in a rape case that "India are a conservative society, it has not yet reached such level (advance or lower) of civilization where unmarried girls…indulge in carnal activities with boys just for the fun of it, unless the same is backed by some future promise/assurance of marriage”.

#BoycottRadhikaApte is trending on Twitter. Radhika, a young film actress has essayed some critically acclaimed roles. She is globally acknowledged as a good actress. Radhika famously acted in a nude scene in a movie few years ago; and recently acknowledged in a media interview that she finds acting in nude scenes liberating.

“Fifty Shades of Grey”, a bold movie, with abundance of nudity and sexual conduct, has been trending in top 10 watched movies in India, for past more than 4months at least.

A society, in which a senior judge would decide on the carnal desires of all the young women, and public supports the call to boycott a brilliant actress for acting nude, while repeatedly watching a near pornographic movie, is certainly not Free.

If Renaissance was ever needed more, it is in India today. We need to bring out the traditional liberated Indian Idea about a just, equal and evolved society from the walls of the temples and ancient revered texts to the ground and exhibit it on every street and crossing.

To attain freedom, we need to reinvent ourselves as a new progressive society that is free from all legacies of slavery and bitterness of the past; encourages children to ask uncomfortable question; avoids dogmas and promotes pragmatism; true to itself and to the world.

In past couple of weeks, some news items, and market & economic trends have attracted my attention. All these news items & trends somehow reflect on the reflation trade that has dominated the global markets for past few months.

The rise in commodity prices in past one year is seen mostly a function of a combination of demand and supply side factors. Post global financial crisis (GFC 2008) the investment in new capacities had slowed down considerably. The economic lockdown due to outbreak of pandemic further curtailed the supply of many industrial commodities. The logjam at Suez Canal further impacted the supply chain. The supply of commodities obviously could not match the recovery in economic activity as the economies began to open up.

The trillions of dollars in pandemic related stimulus further boosted the demand, as all three activities, viz., consumption, capex and trading got boost from worldwide stimulus. The US government’s plan to invest US$1trn in building nation’s deteriorating roads and bridges and fund new climate resilience and broadband initiatives is also expected to lead the further rise in demand for industrial commodities like steel and copper.

1.    A newspaper reported that HDFC Bank has received Rs300bn in prepayments in the quarter ended June 2021. These prepayments were reportedly made primarily by the companies in commodities and infrastructure sectors.

2.    A famous Kolkata based investment manager publically made a very persuasive case for investment in a public sector steel company, implying that in the given circumstances the share price of the company could potentially see a 3 fold rise in next one year. He also claimed that their portfolio schemes are presently invested in all metal stocks.

4.    The analysts at Phoenix Capital Research noted that “One of the key drivers of stocks prices since the March 2020 bottom has been the Fed’s interventions. The Fed spent a total of $3 trillion between March and June 2020. It briefly dipped between June and July 2020 but has since increased at a steady pace courtesy of the Fed’s $120 billion per month Quantitative Easing (QE) program.

However, all signs point to the Fed reducing these interventions going forward. With jobs numbers like those from July (900K+ jobs were created), the unemployment rate down to 5.4% again, and inflation roaring (CPI is clocking in over 5%), the Fed is effectively out of reasons to continue its month interventions at the current pace. Add to this the fact that numerous Fed officials are calling for a taper to QE and even rate hikes, and it’s clear the Fed is on the verge of announcing that it will be reducing its money printing very soon.”

It is pertinent to note that the GDP estimates for another large economy (India) have also been revised downward at least twice in past 4months, by almost all global agencies.Obviously, this cannot be good news for the traders staking their money on continuing reflationary trade.

The International Energy Agency (IEA) cut forecasts for global oil demand “sharply” for the rest of this year as the resurgent pandemic hits major consumers, and predicted a new surplus in 2022.

The announcement led to sharp correction in crude oil prices to the three months prior levels.

7.    The last move of about half of emerging market central bankers was hike in policy rates or policy tightening. Obviously, the days of monetary easing are behind. This shall definitely check the runaway inflationary expectations and therefore impact the reflation trade. 

8.    A BollombergQuint report highlighted that “Indian companies are running out of room to absorb rising raw material costs, which could force the central bank to unwind stimulus faster-than-expected and threaten a stock market rally that has earned billions for investors. Companies from the Indian unit of Unilever Plc to Tata Motors Ltd., the owner of the iconic Jaguar Land Rover, are increasingly complaining about pricier inputs and are frustrated at not being able to fully pass on costs to consumers reeling from the pandemic-induced economic shock. But it is only a matter of time before the pass- through happens, warn economists.

While its a tough balancing act, companies are mindful that something will have to give in eventually. In this case, it could mean higher prices being passed to consumers gradually as a recovery gets stronger in Asia’s third-largest economy.”

10.  Earlier this week, the US Senate gave bipartisan approval to a US$1 trillion infrastructure bill to rebuild the nation’s deteriorating roads and bridges and fund new climate resilience and broadband initiatives.

The plan reportedly includes, US$550 billion in new federal spending, to expand high-speed internet access (US$65bn); build/rebuild roads, bridges, etc (US$110 billion); airports (US$25 billion); and the most funding for Amtrak since the passenger rail service was founded in 1971. It would also renew and revamp existing infrastructure and transportation programs set to expire at the end of September.

11.  Back home, financials have are sharply outperforming the commodities since past three weeks. The market is telling that metals, sugars etc. have reached their peak margin and peak valuations. Using the strong price cycle, many large commodity companies have repaired their balance sheets. Consolidation by way of IBC process has also helped the larger companies. It is time that these companies may be thinking about the next capex cycle. Sugar companies have already embarked on a major capex cycle to set up new ethanol capacities. Steel companies are already planning major capacity additions. As per media reports SAIL is looking to expand capacities by 12-14 mt at its steel plants at Bokaro and Rourkela.

The popular inflation hedge trade (gold and silver) has done much worse than the overall commodity universe; whereas Bitcoin (perceived to be one of the most riskiest and volatile asset presently) has done very well.

Conclusion

These are still early days to conclude anything from the above cited news items and trends. Nonetheless, in my view, the following deductions from viewpoint of investment strategy may be considered reasonable:

·         The sharp run up in commodity prices is factor of supply constraints and demand stimulus. There are indications that supply constraints may ease as economies open up further; demand may cool down as monetary stimulus are gradually withdrawn and pent up demand subsides.

·         The commodity price inflation is now testing the limits of the industrial consumers (manufacturers). Any further rise from here shall be passed on to the last consumers, who would have much lower absorption capacity in absence of further stimulus checks. It is reasonable to assume that normal demand supply equilibrium will settle at a lower level only.

·         The balance sheets of commodity and infrastructure companies have seen substantial improvement in past one year. These two sectors accounted for more than half of the stress in the banking system. Besides, the credit growth is likely to pick up as companies rush to augment capacities to meet the increased demand and avail new government incentives for manufacturing sectors.

·         The conventional wisdom suggests that now it’s the turn of financials and capital goods manufacturers to do well. Commodities can wait for FY24 to have their turn again.

On the eve of 75^th Independence Day when you buy a plastic Tricolour from a young child on the traffic signal, would you (a) pause to think that this flag may be of Chinese origin, (b) buy with the idea of helping the poor child; or (c) just buy to demonstrate your feeling of patriotism?

In the post-independence period, the Indian economy has been persistently suffering from a variety of deficits. Though in the financial market parlance the twin economic deficits, viz., current account deficit and fiscal deficit, have been discussed most, these could be the least of worries for Indian economy in the current circumstances. Some of the most worrisome deficits, in my view, include:

·         Growth capital deficit

·         Advanced technology deficit

·         Skill deficit

·         Trust deficit

·         Compliance deficit

·         Governance deficit

·         Productivity deficit

·         Social infrastructure deficit

·         Employment opportunity deficit

·         Demand deficit

On the eve of 75^th Independence day it is important to appreciate that to successfully achieve the objective of self-reliance, as being popularly understood, we must first bridge this multitude of deficits.

Not many people may like hearing this, but the fact remains that in recent years China has been helpful in bridging many of these deficits, especially growth capital, technology, productivity, employment opportunities and demand deficits. Chinese investors have invested millions of dollars in Indian start-ups by way of risk capital. Chinese have supplied affordable solutions in the areas of energy, transportations, chemicals, healthcare, etc. Affordable Chinese consumer imports have created huge employment opportunities for millions of self-entrepreneurs, traders, street vendors, and aided in creation of demand, especially consumption demand. Of course, all this has not been gratuitous on the part of Chinese enterprise and administration. Nonetheless, it has helped to a great deal.

We must pause here and assess that since due to legacy issues we always have a wide and deep trust deficit with China, was it advisable in the first place, to let Chinese and Indian economic interest intertwine so much?

Keeping the jingoistic nationalism aside, we must also consider that the non-essential toys, plastic decorative items, small appliances & tools which are more visible and talked about items, constitute a miniscule part of the total imports from China. The imports are dominated by electronics, engineering products & components, agro chemical, specialty chemical, medical equipment, precious metals and Iron & Steel. Our main exports to China include Cotton, gems & jewellery, copper, ores, organic chemicals. China is therefore present in our entire value chain.

Disengagement with China in markets therefore has to be equally strategic as in case of borders. We cannot and should not do it overnight by taking some whimsical, but popular, decisions. We need to have a strategy to fill the deficits by alternative means and render China redundant before disengaging ourselves. Self-reliance in this context would mean, building capacities in the fields of advanced technology, raising the level of skill, compliance and governance to attract adequate amount of growth capital, raising productivity to enhance savings potential for domestic funding of growth; and bridging the trust deficit between the people and the administration.

This endeavour would inevitably include bringing India into a state of equilibrium by removing social, and regional, economic imbalances, e.g., through-

·         Industries and businesses who have thrived historical on government largesse and not necessarily on the enterprising abilities of promoters giving back to society by way higher taxes, higher voluntary CSR spending, technology upgrade for better resource utilization, etc.;

·         Regions like Gujarat and Maharashtra, which are economically more developed despite not being endowed richly with natural resources, acknowledging that a part of their development is due to imperial designs of British regime and share their wealth with exploited regions like Jharkhand and Odisha;

·         Caste and communities which command ownership of the major part of economic resources and occupy most of the social space, voluntarily vacating some space for the historically oppressed and downtrodden;

·         Populace which has grown to be non-compliant by habit, not necessarily by intention, changing habits like spitting on roads, violating traffic rules, encroaching on pavements in front of their house/shops, exploiting domestic helps and child labor etc.;

The 27yr old Australian swimmer Emma McKeon has won seven medals (4 Gold and 3 Bronze) at the Tokyo Olympic 2020. Overall, she has won eleven Olympic medals (5 Gold, 2 Silver and 4 Bronze).

In comparison, India has won 35 Olympic medals (10 Gold 8 Silver and 17 Bronze) in the history of modern Olympic. The first medal for India was won by Norman Pritchand - who won two silver medals in Men’s 200m and 200m hurdles at Paris 1900, 121yrs ago. For next medal, we had to wait 28years when Indian men’s hockey team won gold at Amsterdam in 1928.

After 1928, India won medal in the Men’s hockey event for next ten successive Olympics till Munich 1972. The only other medal during 1900-1972 was won by K. D. Jadhav in bantamweight wrestling (Bronze Helsinki 1952). Our contingent returned without a medal from Montreal in 1976.

Post Moscow 1980 Gold in the men’s hockey, India failed to win any medals till Leander Paes’s tennis Bronze in Atlanta 1996. We have won medals in each Olympic since 1996. Our best performance so far has been in Tokyo 2021 ( 1 Gold 2 Silver and 4 Bronze).

Eight of the ten gold medals have been won by India in the men’s hockey event (the 9th being in Air Rifle Shooting by Abhinav Bindra in Beijing 2008 and 10th by Neeraj Chopra for Javeline throw in Tokyo 2021). Other medals have come in Shooting (4); Boxing (2); Badminton (3); Weightlifting (2); Wrestling (7); athletics (2); tennis (1) and hockey (4).

I have been observing for past four decades that we as a nation start with extreme hopes and excitement three months prior to the Olympics. Media, corporate houses and now politicians also, make all efforts to raise hopes and expectations of billion people. However, by the end of the games, most of the excitement fizzles outs; hope turns into despair; criticism overtakes the appreciation; media and politicians move on to the next high TRP story; and sports enthusiasts mostly get back to their routine life after throwing few sacks of suggestions and advice for the sportspersons and sports administrators.

This cycle gets repeated for every major sporting event (including cricket) without fail. This raises two questions in mind that relate to politics and philosophy of sports:

Politics of sports

In past two decades (particularly after advent of IPL), sports has emerged as a large industry with huge employment potential. More important, sport is becoming increasingly democratized, allowing large number of people from underprivileged sections of the society (a fertile political constituency) to participate. Looking at the profile of successful sportspersons in recent years, it is evident that many sportspersons with modest socio-economic background have excelled in their respective sporting disciplines.

A lot of clamouring, financial support and other efforts are made to make athletes competitive at the international level. These efforts have certainly yielded good results in past two decades. With larger corporate participation, the sports infrastructure in the country is improving materially.

A number of sportspersons have performed well at the international level. Anecdotal evidence would suggest that one successful athlete might motivate 100k more to join the race.

The reluctance of the government in formally declaring sport as an industry is however baffling.

Philosophy of sports

Various societies in the world could be divided into two broad categories - (a) Ladder societies; and (b) Cliff societies.

The ladder societies are usually upwardly mobile societies. In these societies all get support and an equal chance to move up step by step. The place at the top is strongly believed to be infinite; therefore, the competition in these societies is mostly internal - people compete with their frailty, depravity, fear, and vices like lust, anger, greed, haughtiness, and infatuation.

Peace, asceticism, abstinence, benevolence, goodwill, spiritual evolution are some of the key words in these societies.

Cliff societies on the other hand are usually static societies. The core belief of these societies is that the place at the top is limited. The competition in these societies is therefore mostly external and fierce. To stay at the top, one must (i) stop others from climbing higher; (ii) be vigilant about those who have already reached the top, as they may try to push you down; and (iii) be consistently at fight with the peers and try to throw them off the cliff to secure your space at the top. Considering the intensity of the external conflict, the internal malice in these societies could remain unattended for unusually long periods of time.

Animal spirit, killing instinct, survival of fittest, relative competitiveness, material comfort, economic evolution, are a few of the key words in these societies.

All modern global sporting events, like global industry & commerce, have evolved in the cliff societies. These promote relative competitiveness as key sporting objective. The necessity to win medals incites the "animal spirit" and "killing instincts" in the participants. Unfortunately, this animal spirit and killing instincts do not die at the podium. These stay with the participants for long and impact their personal, social and economic life.

Moreover, this concept of "relative competitiveness" (also known as first past the post) is a major impediment to the quality in life, as the focus remains on doing better than the competitors rather than doing best for the self and the society.

Traditionally, India had been a ladder society. The concept of Ram Rajya is used to outline the tenets which promote absolute quality, equality and harmony in the society, permitting each individual to pursue his/her own chosen path with passion and dignity. Winning Olympic medals does not fit into traditional Indian ethos, but excellence in sports does.

Actually, traditional Indian businesses were also based on individual/social excellence (arts and crafts). The entire R&D effort remained focused on upliftment of entire society rather than profiteering.

But as the episodes involving wrestlers Sushil Kumar and Narsingh Yadav etc. show, a part of our society might be transforming into a cliff society fast.

More and more of our sportspersons are getting closer to international medals and trophies. Of course we will start winning more of them in next decade or so. More of our businesses are becoming globally competitive now. The natural corollary is that we would see more businesses getting crushed or gobbled by these large businesses over next few decades. Unfortunately, besides numerous cases of abrupt bankruptcies and hostile takeovers, we shall also see many more cases of road rage, domestic violence, divorce, back stabbing amongst professional colleagues, etc.

The idea is definitely is not to undermine the effort and achievements of the sportspersons playing for the country. It is also not to suggest that participation in competitive sports makes people aggressive and violent.