Bullish, bearish, sheepish

Bullish, bearish, sheepish
Shekhar Gupta

Exactly a month after a dream budget and on the day it presents yet another reformist exim policy, what will this government tell you if you asked if it was feeling bullish or bearish?

If it speaks the truth, it should admit to feeling a bit sheepish instead.Sheepish, because many of its wounds are self-inflicted. It is one thing to usher in reformist policies, deregulate, join the global mainstream. But all that comes to naught if the main barometer of the mood of the economy, the stock market, looks every morning as if it measures eight on the Richter scale. It is still a long time before the poor really begin to feel the trickle-down impact. But, what a growing stock market does, instead, is to give the middle class feel-good vibes. Now, you have entire middle class families committing suicide, with life’s savings, borrowings, even embezzled wealth wiped out on Casino BSE. If this is real capitalism, if this is the way free markets are supposed to function, it will be a long time before even the middle classes rediscover the magic of the free market mantra. The poor, you can forget for ever. Because if the benefits of reform do not trickle down from the rich to the middle classes, how will they ever percolate lower down?

How do you, as an average investor, interpret the headlines this morning? You’ve been seeing the story of this new scam in the making in driblets in newspapers over the past two months. Each time a new chapter opened in this scam, you were reassured by the government or its spokesmen that it was now moving in with the broom. That SEBI and RBI were looking into this or that. That the crisis was overblown and so on. Now you see that all the same little scams, the same little scamsters have added up to what looks like the mother of all scandals on our stock markets. It may be morally difficult to sympathise with the Kolkata brokers. Their plight is the result of their own greed. But what does the government, with its army of so-called regulatory bodies, have to tell some poor pensioner who invested his provident fund in what looked like a responsible mutual fund which in turn invested to shore up some sinking KP stock and wiped out investor value?

It was, unfortunately, Manmohan Singh who immortalised the phrase, ‘‘I won’t lose sleep over the stock market’’, in the course of one of the earlier scams. Since then, finance ministers have tended to take that same, smug, moral high ground: I am, after all, a minister earning a small wage... Or, I have no money or time to play the markets... so how do I care... I only make policies, the markets have their own logic... and so on.

It doesn’t work in real life. If you create a new capitalist dream, you cannot blame the middle class for believing that it must lead to quick, if not instant, gains. So no problem if the greedier amongst us cannot double our money every three months. But we cannot be faulted for hoping that at least the straightforward index funds should be able to give us substantially higher gains than our provident funds or bank fixed deposits in what are, generally, good years for the economy? If the economy was on a downswing, if war was on the horizon or a catastrophic drought had hit the country, we won’t mind not seeing our stock market investments shrink. But if they get wiped out in a reasonably good year for the economy just because some well known shady elements were allowed to rape the markets, we need to kick somebody in the shins.

Who that somebody should be is not such a difficult question to answer. Similarities between today’s headlines and those during the last major scam (1992) are eerie. Once again, it is not merely a case of insider trading alone, but insider trading backed and financed by cooperative banks with the entire regulatory system looking the other way. Even if SEBI says it does not have adequate powers or that (as the Intelligence Bureau tells us after each terrorist strike) it had warned everyone who mattered anyway, what has the other big brother, Reserve Bank of India, been doing in this case? In the case of the Harshad Mehta scam it was Bank of Karad, another cooperative bank. Now there is Madhavpura Bank. Even there, the money lost by the cooperative banks must belong to the poorest of the small savers who probably were lured by the marginally higher interest that these banks pay.

In which other country can its main markets be hit by two scandals resembling each other in so striking a manner almost a decade apart? All it can mean is that either our regulatory bodies, as well as the ministry of finance, have failed to learn any lessons from the past or their key functionaries, even the political system, are so compromised as to be incapable of enforcing regulation.Just how complacent they have been can be seen from the fact that Ketan Parekh, now arrested by the CBI after nearly one-third of our market capitalisation has disappeared, was already an accused in the 1992 scam. Our very doughty columnist, Sucheta Dalal, reminds me that he is, actually, accused No. 10 in the CBI’s case No. 3 of 1996 against Canbank Mutual Fund.

The CBI also must know him well. They have his passport and he has had to present himself to them at 9.30 every morning to prove he has not escaped. No one reminded us of this all this while, except the odd journalist or newspaper who were then subjected to incredible persuasion and pressure on the argument that the market, in fact Mother India, need the Big Bull so desperately. Bulls build wealth, we were told, so will you please shut up and let the Sensex climb? Our history shows though that bull manipulation always brings a bear-hug in its wake. Which is exactly what is happening now.

This latest stock market story, therefore, is not the scam or corruption, the payment crisis or the default. It is the total failure on the part of our regulators to see reality and such culpable complacence on behalf of the finance ministry that you wonder if the old script won’t repeat itself again soon enough. Another bull will soon raise its head, out of the old cast of characters from among the various scamsters, take the Sensex to 6000, brokers would party and regulators smugly pat their own backs. And a scam would restore sanity yet again. Want a wager on that with me, Messrs Yashwant Sinha, D.R. Mehta, Bimal Jalan? That is, actually, the only stock market punt on which I could be sure of making some money.