Fallen, not broken

Seven trading days ago, on January 10, I got an SMS from a colleague who has an equity exposure that would have the Left parties deliver benign smiles of approval. “Should,” she asked, “I buy this stock (a global pharmaceutical major)?” My answer: No. Not because this person, in her twenties, doesn’t need the equity exposure — she does — but because I didn’t want to be the shoulder over which she would fire her first speculative shot. As I walked into office later in the day, I told our resident stocks expert that the market will fall.

And fallen it has — indeed, what a fall. A full 2,062 points, intra-day. To put this number in some sort of historic perspective in a market that looks at history with scorn, this fall in the value of the popular market benchmark Sensex on January 21 approximately equals the value of the Sensex 16 years ago, when it closed at 2,020 on January 15, 1992. Though I was fairly sure the Sensex would fall, the extent surprised me, as it has most market players.

There is a diarrhoea of ‘analysis’, presented with a bravado that weakly attempts to couch the experts’ real sentiment: fear. These lame-duck experts are using two crutches to make their holy pronouncements. The left crutch of reason says Indian markets have fallen because of global factors in general and the looming US recession (its declaration, really) in particular. Despite its fantastic growth, India has not decoupled from the US economy yet and so, if the Dow does an ‘aaaaah’, the Sensex would end it with a ‘choooo’.

By all indications, the US recession is all but an announcement away. The $150 billion tax cuts that the Bush administration announced late last week are among the many signals to soothe a market that is still reeling under the unknown impact of the sub-prime crisis there. Unknown, because of the staggered manner in which banks are disclosing their bad assets — money lent to households that didn’t have the capacity to pay, at rates that were higher than better quality borrowers’, at a time when property prices are turning, with the pain accentuated by financial ‘innovators’ who securitised bad debts and sold them to investors — leaves much in closed books behind closed doors.

Not for a moment am I saying financial innovation should be banned. It is transparency and accountability (of rating agencies in this case, riding on whose Triple A products that were really not even investment grade) that I’m advocating. At stake is not merely the interest of investors who transacted in these collateralised debt offerings, but balance sheets of banks, through them, the poor who bought homes to live in.

... contd.

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