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K Seshadri
The Indian investor's cup of woe is overflowing. This time around not for any Indian reason. What we witness today is the other side of the globalisation coin. Globalisation, when it was ushered in by Manmohan Singh in 1992 was considered a boon. It has now turned to be the worst curse for the small stock investor. Not many had visualised that one day globalisation would acquire the devastating sway that now it holds over the Indian stock markets.
Look at how the Sensex is reeling. It is falling because Japanese yen is into a fright and, not because Jayalalitha is trying to pull down the BJP government. But understanding Indian politics is something manageable for the Indian investor. But, how is the small investor supposed to figure out why and how Japanese yen should wipe his investment all of a sudden by say 30 per cent in the last one week.
More precisely how does he figure out when and where would the Sensex bottom out. Technical analysts are of no help, as they only keep talking about the next The Indian investor's cup of woe is overflowing. This time around not for any Indian reason. What we witness today is the other side of the globalisation coin. Globalisation, when it was ushered in by Manmohan Singh in 1992 was considered a boon. It has now turned to be the worst curse for the small stock investor. Not many had visualised that one day globalisation would acquire the devastating sway that now it holds over the Indian stock markets.
Look at how the Sensex is reeling. It is falling because Japanese yen is into a fright and, not because Jayalalitha is trying to pull down the BJP government. But understanding Indian politics is something manageable for the Indian investor. But, how is the small investor supposed to figure out why and how Japanese yen should wipe his investment all of a sudden by say 30 per cent in the last one week.
More precisely how does he figure out when and where would the Sensex bottom out. Technical analysts are of no help, as they only keep talking about the nextpossible level of resistance! No one seems to be sure as to where the index would hit the bottom. And this is desperately important. Because much as the investor has lost money in this meltdown, he needs to recoup his loss by logging in just when the market is about to make a reversal. A mistake can only wound inflict deeper wounds and kill whatever fighting spirit, he still has left.
And it is with these concerns we need to try and figure out the intensity of the current Japanese tornado that is sweeping across Asian financial markets.It is common knowledge that all is not well with the Japanese economy for some time now. And the world witnessed a new dimension in global economic relationships as US went out of the way to pour billions to steady up the tottering yen. If Japanese economy collapses, it would hurt American business and employment badly. Thereafter Clinton administration has been goading Japan to get on with the reforms needed to put Japan back on track. The Japanese prime minister had thenresigned paving the way for election of a new leader. Moody's who bungled with the rating on the Asian tigers, was quick to announce its intention to review the triple A rating for Japanese debt for a downgrade. All these and a word from Allen about the overheated stock markets of US was enough to strike a trigger for profit booking in the Wall Street. But these were not not the only triggers. Boeing's announcement that its second quarter earnings fell 46 per cent, symbolised what the Asian downturn means to American business. However, what came a surprise is the quickness with which the Indian stock market responded to the likely downgrading of Japan's rating. Earlier, the Indian stock markets had held their own when the other Asian stock markets reeled. But this time it is probably the Dow Jones tremor that cracked the thin ice on which Indian bulls were skating.
Why is Japan's financial health important to India, leave alone US. Much of the Asian tigers and China derive great strength, financial andbusiness from Japan. Japan has several overseas investments in the region. If the patron Japan is ill, it is bound to affect the financial health of the region. And in turn it would have an impact on Indian exports, which are sizeable to the region. With the current account deficit already under pressure this is not exactly a pleasant development.
The rupee could come under more pressure. The damage would be contained thanks to the rupee cover already provided to FIIs and NRIs and the floating of offshore bonds. Japan now has a new prime minister, but one who is expected to be soft towards rigorous economic reforms. The US is worried and is keenly watching as to who the finance minister would be and what package he would bring. This assessment is likely to take the next three weeks. So would the Indian stock markets remain weak until this assessment is over? In my view not really. The Japanese problem has been evolving and has no overnight solutions. The Indian worry is limited to the commodity natureof its exports, which is indeed a weak base. The current account deficit could get worse.
And all these development could lead to one more round of reassessment by global rating agencies on India. One should not be surprised if there is another downgrading of our sovereign rating. India will pay the price for not developing a strong base of manufacturing exports. But, let me turn to the brighter side of the sky. Panics and euphoria are common in stock markets the world over.
Even the investors in US would have to make fresh forecast of the fortunes of their global companies. The Asian problem will take its own time to get solved. As they adjust to a new world, stock prices would settle down across the globe. The Indian stock prices had simply mimicked or over mimicked without much reason to what happened elsewhere in the globe. While I am not underdiscounting our own economic weaknesses, I must point out that there is not enough reason to drive the Sensex down back to 2900 levels or 2200 levels!
Andthanks to our earlier experience we have a system to counter check undue short-selling.
And let us ask ourselves this. If the Indian markets were intrinsically not worth, why did a huge chunk of FII investment took place in HLL, BHEL etc, only just a few days back. The fact is that currently the stock markets are under the spell of one more panic attack. And let us remember stock market is a place where players play dirty games all the time. Some one including FIIs may be just driving down the market so that they can pick the stocks cheap! The moral of the story is `If you cannot beat them join them'.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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