Sensex is hungry but it needs to look beyond earnings to feed itself

The latter, saw two new indices tracking it, both launched on July 10. While National Housing Bank’s Residex which will track prices of residential houses in five cities (most of which have more than doubled in five years) for starters and 63 over time, BSE’s Realty Index, which within five days rose 400 points to 7,778.

If, over the next two weeks, earnings don’t show up as per the great expectations it houses today — the Sensex at a PE multiple of more than 22 times is among the world’s most expensive indices — will the Sensex eat its own tail and come down crashing? Yes, if the global flows into markets pause and financial indicators slow down.

But unlikely, if you look at real macro indicators. The Indian business cycle that turned around in the September 2003 quarter is showing no sign of slowing down. In the last three quarters ending March 2007 alone, outstanding investments — the sum of projects which are proposed, announced or under implementation — have grown by 13.8 per cent, 28.2 per cent and 18.1 per cent. The market, I suppose, should have enough patience to see these investments through.

Financial services need democracy

In reaction to last week’s Nonsensex, a reader wrote in to tell us Sunita’s story. A 45 year old widow, Sunita used to work in various houses in South Mumbai as a ‘chutta bai’ for over two decades. Last year, as her only child moved to the suburbs, Sunita found an employer who would allow her to stay with them in South Mumbai, thus ensuring she could keep her jobs and her financial independence.

“That’s when I realised that Sunita’s future would be upto those of us who employed her. A day would come in the future when she would not be able to work and with no savings and no home, would be at the mercy of relatives. I decided to buy her an annual pension plan. She had a bank account and gave the address of a brother where the account statement could go.”

And suddenly, rules became fences. “We submitted this application on July 3, 2007 and it was rejected because there was neither a PAN number nor a Form 60 nor an acknowledgment of PAN application. I got a PAN application form but the application asks for a residential and/or office address with proof. Sunita wanted to give her brother’s address where the PAN card could be sent but the only address proof she had was a Voter ID card of her former shanty. For a variety of reasons, the employer who she lives with is loathe to have his address noted as her place of residence. The result: Sunita cannot get a PAN and she cannot invest in Templeton Pension Plan.”

The letter ends with a plea: “While the idea of making PAN the universal ID is laudable, the announcement last week shows how it actually works ensures that organised savings is not an objective of the regulator or even the nodal ministry. And to answer your headline, I don’t know if the circular will kill mutual funds, but it will surely kill wealth creation among those who really need it. In the meantime, any suggestions to help Sunita will be most welcome.”

While this should not dampen the spirit of policymakers who are finally — and rightly — attempting to clean up a tax evasive system in favour of audit trails through PAN and KYC norms, they must be able to bring Sunita into the system and help her get oldage security. Perhaps a quick reading of the Peruvian economist Hernando de Soto’s Mystery of Capital, in which he shows how in developing economies informal ownership of land and lack of clear titles is more the rule and devises solutions around that assumptions, may help policymakers view the problem from ground up.

Most importantly, if Sunita can vote a government to power, why can’t she buy mutual funds? Democracy, I suppose, needs to trickle down to financial services.