Why have Indian equities poorly performed? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 7 February 2014
Why have Indian equities poorly performed? A  A  A

Bombay, India

Do you remember the dark months you held the sector at Mametz--
The nights you watched and wired and dug and piled sandbags on parapets?
Do you remember the rats; and the stench
Of corpses rotting in front of the front-line trench--
And dawn coming, dirty-white, and chill with a hopeless rain?
Do you ever stop and ask, 'Is it all going to happen again?'

By Siegfried Sassoon

US stocks made a healthy show yesterday, with the Dow up 188 points. Fears of a crash subsided, according to the papers, on earnings and unemployment data. Blah. Blah.

Meanwhile, we got a glimpse of Bombay's new huge, ultra-modern airport when we arrived. It is an engineering and architectural marvel...

An airport is necessarily a rational, planned affair. Travelers, luggage, airplanes - all must function with as much efficiency as possible. Schedules must be kept. Procedures must be followed. Order must be maintained.

But all around the airport was chaos. Support towers for a modern highway rose up out of the dirt...where chunks of broken, discarded concrete had been abandoned. Tools...building supplies...shacks and sheds...trash...and, of course, people mingled in complete disorder.

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Why don't they straighten the place up? Why not put things away? Why not impose some order? Will India always be a poor, messy confusion?

"You will never understand India until you've read the Bhagavad Gita and the Vedas," cautioned an old friend.

We didn't have time to read the ancient texts. So, we kept our eyes and ears open.

Last night, we made our way through the festivities for Kala Ghoda in central Bombay to the Sassoon mansion. The streets were crowded. Pedestrians. Motorcyles. Automobiles. There was little open space. Women in their bright sarongs...odors of spices on the sidewalk...vendors selling jewelry and drums. Horns honking. It was Bombay, after all.

David Sassoon was a rich Indian Jew who moved his family to England. His grandson, featured above, fought in WWII and chronicled the foolishness of it in poetry. In the inner courtyard of his house - now a museum - local poets recited their verse to a sparse crowd. A young woman with a very English accent had the stage:

    What am I to make of all the sounds?

    All the noise.

    Is it real life...the real thing...all there is...and nothing more?

    Or, is it all illusion and distraction...

    Diverting my attention from the deep mysteries of my own soul?
We didn't stay for the answer. Is it all an illusion? Maybe. But it's all we've got. Better make the best of it. And that is done not by exploring the mysteries of our souls, but the mysteries of the noise.
    "Everyone is India is corrupt. Well, not everyone. But there have been so many scandals that it's no wonder people don't want to put their money in Indian stocks. "
Our colleague was explaining the poor performance of Indian equities.

While US stocks were up 30% last year, Indian stocks fell 2%.

But the more he explained, the more puzzled we became.
    "India has always been very corrupt place. It's the only way to get anything done. You need to bribe someone. But Congress passed a law requiring public disclosure of the contracts between the government and private business. For the first time, you could look at what really goes on. Naturally, you find corruption. The dealmakers didn't want to be prosecuted, so they simply stopped making deals. As a result, the big capital investment projects came to a halt and the economy suffered.
It sounded as though it wasn't corruption that hurt the Indian economy, but the lack of it.
    "This stage will pass. People will get used to this new transparency law. They'll figure out how to be corrupt without getting caught. The economy will pick up."
And how will Indian stocks do? Will they get back on their feet?
    "If you go back to 2000, you see that everybody's favorite market - the US - has risen about 50%. That's the S&P 500. Compare that to the Bombay stock exchange. The BSE 30 rose 600% since 2000. And the fundamental conditions have not changed. India is young and poor. America is old and rich. Which one will grow most in the next 10 or 20 years? Probably India."
Yes, once it figures out how to get its corruption mojo working again...India I set to boom. Or not.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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3 Responses to "Why have Indian equities poorly performed?"

Ajay Kumar Gupta

Feb 11, 2014

India can certainly improve if we can get rid of corruption and corrupts, which are causing lot of drain on the resources.



Feb 9, 2014

Dear Mr Bill Bonner,

I would like to bring few things which you would have already known.

Indian equities performed better between 2003 - 2008 was because of the policy decisions of the government ruled between 1999 - 2004, but the credit where taken by the next congress government came to power in 2004, they enjoyed the credit even without adding any value to the economy they slowly started destroying it by destabilising the economy with scams (2G Spectrum, CWG, COAL block allocation, Defence deals...etc., and schemes like the MNAREGA which increased the labour inflation along with the 6th pay commision and the farm loan waiver scheme before the 2009 elections, all costed the government a huge sum of money, the wage inflation is also a reason for the overall inflation in India, because of which interest rates have to be kept higher and money become costlier for corporates and adding fuel to fire the real estate prices soured, which is mainly due to the huge black money circulated in the economy. As the UPA government is famous for scams I assume the first two layer of politicians would have safely hidden the looted money in swiss banks, the next three layer of politicians money is got invested in real estates under binami names. People those who sold the land are become new millioners who doesn't have the capacity to manage such kind of wealth. Which then got invested in same real estate where no questions asked which further pushed up the real estate prices. And adding to that government also encoraged companies to borrow outside india under the idea of having access to cheap capital the repayment of those loans is now haunting the INR and increased the countries import bill to multiple notches. Instead of encouraging industrial activity the government allowed companies to import cheap chinese goods and killing the employment opportunity of many Indians and hurting the economy too.

It is not corruption but a leader who thinks and acts on behalf of the people is what will improve the economy.



Feb 7, 2014

Welcome to India Mr Bill. Hope you are fine.

Will India always be a poor, messy confusion? People mingled in complete disorder. Good question.

These words remind me of another BB (Boris Becker) who toured India in 1996 to participate in the Chennai ATP. Becker said that every one metre of travelling from his hotel to Nungambakkam Tennis Stadium, he felt there would be an accident and he observed rightly not just the people from an audi car to a beggar but even the animals (cows, dogs, goats, sheeps, buffalos, pigs, donkeys, cats, hens, cocks and horses) mingled on roads in complete disorder. It is almost 20 yrs since his first visit and the hype of India growth story had begun. Unfortunately, it is the same old story and observation by another westerner.

Ancient India was ruled by upper castes, who were pious, strict,religious and even caring for people. Many still admit that the period of Guptas and Mauryas were the best period in Indian History.

Anyway wish you a happy stay in India. Enjoy our best vegetarian cuisines, stay a couple of days in a clean ashram. I am sure these two will force you to come back again and stay for a longer period.

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