Equity markets have done a little loop-the-loop. After a more or less uninterrupted rise lasting many months, we had a few days when the markets went down sharply, and the usual doubts about what lies ahead surfaced.
It doesn't help matters that the most severe impact seemed to come from 'global cues', a phrase that most Indian investors associate with the roller coaster 2005-09 period. Every day, business TV channels would describe what various markets around the world were doing and how India was just following suit. And then came the biggest cue of all, the global financial crisis of 2008. I've realised in the years since that many Indian equity investors think that the entire collapse of the Indian markets was due to some malign influence of foreign cues.
They feel that the Indian markets were charging on to ever newer heights, when Lehman Brothers came and spoiled the party. Of course, the reality is that much of the growth of those years, as well as the relentless rise in stock prices, ultimately flowed from the extraordinarily loose monetary policy that the developed countries followed. There was money to be had for the asking - and that too at very low rates.
Things may be a bit different now but the fear of global cues remains just as potent. Over the past fortnight, a wave of global cues have hit India. Most of these have arisen from the sharp fall in oil prices, which in turn have created a huge uncertainty about the economic situation in Russia, which in turn had a cascading effect on global financial markets, which in turn generated those nasty global cues that make the Indian markets so nervous.
In fact, almost overnight, there were a spate of worries that the analysts started writing about. All kinds of doubts surfaced quickly. A great deal of breath was expended on what the equity markets have been doing. Had they run ahead of themselves, and when will rates fall and when will 'reforms' start and then when will growth return and whether there is too much optimism and whether there is too much pessimism and so on and so forth.
However, the bottomline seemed to be best defined by this little graphic that someone sent me. It pointed out that the BSE Sensex was 100 in 1979, it touched 600 in 1989, 3,600 in 1999, and 21,600 in 2008. In other words, it has been 6x per decade over a long time. There has been a huge diversity and massive volatility in what happened during each decade, the nature of Indian business changed beyond all recognition, and yet the upward march continued.
This week, right in the middle of the worst day of the fall, I spent some time with a leading fund manager and the founder of a leading brokerage, discussing what was happening. The two have a great track record of doing well in these markets over a period of decades and both were completely unconcerned by the gyrations on the screens.
Despite some theories, the fall in oil and other commodity prices is a fundamental, long-term good for the Indian economy. After a long time, a lot of things are coming together for India. The domestic inputs were always there, the right global conditions and a responsive government that is actually interested in moving things forward. There are no economies of size that are poised the way India is. Equity investors should look upon the coming years as an opportunity that, at a minimum, will make us stick to the 6x long-term rate, and possibly higher. What more could investors need? Indeed, what more could India need?
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