The Only Thing Going Up In The Air Is Equity

The Only Thing going Up In the Air Is Equity

This pandemic ravaged year 2020 has put the world’s real economy in the dumps. Many countries are in a declared recession for at least two quarters running. And those that claim slight growth including India and China, are probably indulging in accounting lag and sleight-of-hand.

Stimulus and note-printing to stay afloat, never mind inflation, because you can’t properly inflate prices in a recession when there is minimal or no demand, is the order of the day. Governments are pump-priming the economy to survive.

The rush of cheap, practically interest free money has gone partly into basic consumption and the rest has gone to the bourses. In America with the biggest stock markets in the world, running into over $ 20 trillion, this is evident. Likewise, it is fuelling the European indices, which are individually slightly bigger than ours in some cases, by a trillion or so, but collectively add up to a tidy sum. A proportion of  this gush of money has also come to the emerging markets (EMs), such as India.

Liquidity fuelled booms  are not new. The Clinton years, in not so distant memory, saw the borrow-and-spend economies of the world roar on, and this carried on, beyond, till the crash of 2008. But since then, the progress of the international bourses has  presented a much choppier graph. Have people made money? Some have, obviously, but not many. Too many theories, fear of Black Swans. Both bitten and shy.  

Since it is never much of a strategy to look a gift horse in the mouth, its best to admit that its Hallelujah Time at Dalal Street right now, whatever be the reason. Nobody is holding back because of fundamentals. Everyone knows they will take a year or two to look decent after the companies revive in reality.

But as the market rises amongst all the bleakness and money shortages in everyone’s lives, ordinary punters and investors are cashing out from equity. They are not putting in more money. Instead, they are taking it out as soon as they break-even or realise a small profit. Many have been trapped in equity for some years, without a bean to show for it. Equity, whether it is in the purchase of individual stocks or via the many professionally managed mutual funds, has not been delivering of late, not even for some years before the pandemic. Real earnings from stocks are barely better than debt instruments, fixed deposits and debt funds over the last decade. The old  norm that equity always pays 15% pro-rata over time is just not true any longer. Bull and Bear markets have spread themselves out and the expected  upswings have been reluctant to show up.

However, the stock market is going up today, and so there must be more buyers than sellers. These are the Foreign Institutional Investors (FIIs), swashbuckling types despite their suits, ties and short haircuts, who tend to buy in millions of dollars to the 80 rupee to the US dollar exchange rate.

The FIIs are calculating that a 4 %or 5% gain in India, with zero interest funds from America, invested between June and November 2020, is not a bad gain.  There are really not that many places that this kind of quick buck can be made. The starved Indian bourses respond very fast to gushes of FII money. They always have, right from the 1990s, when this started to happen.

It is, even now, a small, under $2 trillion market, and a few billion in aggregate over the year, goes a very long way to influence its movements. It even affords a measure of control that is not possible without vast sums to invest in America.

The FIIs can buy into the sure-fire high liquidity blue-chips on the Sensex such as Reliance Industries, that are easy to buy in bulk because of large pools of floating stock. And such Sensex stocks can be sold just as readily. Some of the more adventurous FIIs have begun to invest in a few good Midcaps. The Midcap-Smallcap boom, with its low entry points, with stocks priced in the two and three digits, is being pushed by the domestic investors.

The foreign fund managers can earn their Christmas bonuses like this, and come back to milk the EMs again in late January 2021. After all, it is just a small proportion of the total pie going to market in the developed world. But, nobody in the Indian investment fraternity can possibly be complaining.

Does the rally have legs? Will it be a sustained bull market? It is possible, for all the extenuating circumstances. India will certainly bounce back eventually because of its economic vitality and large domestic market. So, a stock market rally fuelled by easy money or liquidity is only anticipating a good future.

In India, there are a new set of features that have opened up in 2020. One is the  benefit  accruing from firms diversifying their manufacturing away from China into India, as well as other countries. Another is the big push towards self-reliance and a domestic armaments industry. The third is emerging sets of foreign collaborations in high-technology areas, because of India’s English speaking and qualified workforce, prowess in Information Technology (IT), and yes, domestic demand.

In addition, the relentless continuance of infrastructure development under the BJP, inspires confidence for the future. The ability of this country to stand up to military threats from both China and Pakistan simultaneously, is likely to engineer a paradigm shift in terms of how India is perceived internationally.  

The likelihood of long term political stability with the BJP and its allies and outside supporters holding sway, is always a good thing in an uncertain world. India’s increasing proximity to the Western powers, notably the US, France and Israel, as  well as cordial relations with Putin’s Russia, is a very reassuring thing for investors. The Gulf Arabs, worried about dwindling oil revenues, are also increasingly taking an interest in India  and the economic opportunities it offers.

The Indian stock market may be out to deliver a quick buck in the short term by way of some relief. But its logic of putting in money now, will probably hold good for the medium to long term as well.

(1,035 words)

For: SIRFNEWS

August 18^th 2020

Gautam Mukherjee

Has Ram Rajya Been Rebooted Today?

Has Ram Rajya Been Rebooted Today?

Has Ram Rajya been rebooted in Ayodhya today? The great ideal of governance, the prime minister seemed to imply in his speech after the foundation laying ceremony, is to be followed henceforth. Whenever, there was a departure from its exalted ideals, there have been evil consequences. Lyrical as all this is, it seems to indicate India has embraced a vision of New India that has firmly discarded the political wrong turns of the past few decades. The grand temple at Lord Ram’s birthplace is expected to be ready by 2024 when India goes into its next general election.

Meanwhile, with China being intransigent at Pangong Tso and the Depsang Plain, with it surreptitious massing troops at Lipulekh and at Arunachal Pradesh, a limited war seems inevitable. China does not seem to understand that its earlier strategies and tactics are not working anymore.

India is wary and watchful for the moment, but is still preparing for a successful two-front war with both Pakistan and China. The sharp conflict when it comes, and it is unlikely to be more than a few months away, must be decisive in India’s favour.

India has a way of being fateful in the loss of Pakistani territory. It helped Bangladesh to be born in 1971 in place of East Pakistan. The US Nixon-Kissinger administration was opposed to it, and sent in the Seventh Fleet into the Bay of Bengal. But it only ensured that India did not attempt to keep any part of East Pakistan for itself. Or impose harsh conditions on Pakistan and its 93,000 prisoners of war at the Simla Summit between Zulfikar Ali Bhutto and Indira Gandhi afterwards.

Once again, the Wheel of Fortune has turned full circle, this time catalysed also by China. India could soon be liberating the original, mostly Shia inhabitants of Pakistan occupied Kashmir (PoK) and Gilgit-Baltistan. The locals have indicated that they would welcome the prospect of being part of India.

The Chinese however are at Ladakh to try and prevent it, by padding their access areas to Siachen, Akshai Chin and indeed Gilgit-Baltistan with more salami-sliced  Indian territory.

China has been concerned ever since Ladakh became a Union Territory (UT), and India began to finish a complex of pucca road links and associated facilities to the high altitude airport at Daulat Beg Oldie (DBO). And another 1,000 km of roads and tunnels, bridges all along the LaC to speed up troop and armament deployment on our side of the divide. Till the Modi regime came into power in 2014, it was only the Chinese who were doing this.

The Karakoram Pass, under Chinese occupation presently, is just 10 km away from DBO, and China’s gateway into Xinjiang. Akshai Chin is China’s road access into Tibet. What is India thinking?

The Chinese plan in Ladakh was to intimidate and frighten India into retreat by a show of strength. But things have gone bad for them with the stout Indian response. And this time America and all its allies are in diplomatic support of India.

The flagship China Pakistan Economic Corridor (CPEC), already invested with over $ 50 billion in Chinese money could be under threat from India.  China wants to avoid this. Meanwhile, the US and its allies  are  not at all happy with China’s belligerence in  the South China Sea, against Japan and Taiwan, not to mention Hong Kong.

India could be waiting for a conflict to break out in the South China Sea area. That would create two, or perhaps three fronts for China if it wants to come to Pakistan’s aid too.

The Malacca Straits can become yet another choke point against Chinese hegemony. In the midst of the Covid-19 pandemic China is uniquely unpopular in the global community.

Another remarkable shift is in the positioning of New India. It has not only tackled old and intractable issues in J&K and Ladakh over the last year, but has also resolved the centuries old  problem at Ayodhya. The foundation ceremony took place exactly one year after J&K was integrated into the rest of India.

All this actual decisiveness does not conform to the smug stereotyping of the Bharatiya Janata Party ( BJP) as Congress plus Cow. After 6.5 years of Modi Raj, the ideological departures from the multiple Congress governments are undeniable. The Education Policy is the latest of many departures from the past though it is early days yet. There is a great push towards infrastructure and communications modernisation. Defence production and greater self-reliance in this strategic sector is beginning to be taken very seriously. 

Not all parts of the private sector, academia, the media and bureaucracy are hostile to the BJP led government. The public approval ratings of the prime minister have been high and unwavering through thick and thin. There is a mandate for change of the old order and it is not just electoral but also sociological. It is  a country that has evolved and seeks to consolidate its identity for the 21^st century when India could well be a major global force. Modi Raj has helped in people glimpsing these new possibilities.

On the economic front, there have been absolutely no corruption scandals at all. Subsidies and grants meant for the poor are paid directly to beneficiaries without middle-man leakage.

There is a new surety of purpose when it comes to the national interest. There is very little international preaching as was the Indian habit in earlier years. And less hankering after international approval too. Instead India works with all sides of the fence if it suits its needs, and is quite clear it will continue to do so. The US, Britain, France, Israel, Saudi Arabia and Russia amongst others appreciate India’s new diplomatic candour.

The Modi regime has considerably upped the ante for Pakistan sponsored terrorists, killing hundreds in Indian territory. It has also struck across the LoC, first with a commando raid near Uri, and then an airforce executed bomb strike at BalaKote. Taking the battle to the enemy will now not be confined just to Pakistan.

Chinese intrusions will not be countenanced. India is taking military, diplomatic and economic measures to punish China.

China will also not be allowed to grab Bhutanese territory. In the process of the conflict yet to come, it is likely India will recapture territory stolen from it from way back in the 1950s. It could help liberate Tibet in addition to PoK and Gilgit-Baltistan. The world is watching and India is not shirking its responsibilities.  

This new set of attitudes and possibilities are just one part of the Chinese nightmare concerning India, and any amount of bluster is not working to deter it.

(1,110 words)

For: WIONEWS

5^th August 2020

Gautam Mukherjee