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India Inc. 54 and going strong… - Views on News from Equitymaster
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  • Aug 16, 2001

    India Inc. 54 and going strong…

    Yesterday, it was 54 years since the country’s ‘tryst with destiny’. At the stroke of the midnight hour, when the world slept, India woke to life and freedom. No doubt it has been a long and arduous journey. A journey that began with the dream that India would catch up with the industrial world that had a lead of about 150 years.

    And India adopted a socialist path for achieving those objectives rather than a capitalist one. Consequently, we had a public sector oriented development strategy. The only flaw in this development theory was that for some inexplicable reason accountability took a back seat. These organisations no doubt created employment, but the successive governments in their zeal forgot to look at the operating inefficiencies. Another problem with the soviet type economic planning was that it hurt the entrepreneurial spirit in the country.

    However, thanks to the foreign exchange crisis of 1991 the economic fundamentals of the country changed radically. There was domestic liberalization and the economy was opened to the outside world. The achievements of the Indian industry since then can be described in a single word ‘brilliant’. The country has the lowest cost steel producer in the world, has managed to indigenously design a car and has the world’s largest grass root level refinery. And of course India’s success in the IT services sector is one that goes without saying. This goes to demonstrate the potential of the Indian industry and underline its ability to take on the best in the world.

    However, to grow the industry needs capital. Lower the cost of capital, easier for the industries to break even on projects and thus becoming profitable. Therefore, lower cost of capital interest people to invest in industries especially the capital intensive one.

    Therefore, when you choose to make your money grow you have the choice of putting in almost no risk investment options or to invest in equities. Due to your equity investments, the capital becomes available to the industry at a low cost. This is the most compelling reason for investing in the equities markets today and the second one being returns. Summary statistics of U.S. investments from 1926 through March 1995 according to Ibbotson associates reveals that the S&P 500 out performed the debt instruments considerably. However, the catch being that the lowest return on S&P 500 was far greater than that in debt instruments. Debt markets are a good avenue for parking money for the short term but with a long-term perspective equity markets are a far superior option.

    Those skeptical about the equities markets will point to the two scams unearthed and huge losses investors have suffered due to the technology meltdown. Our argument is that the big bulls can only take advantage of your greed and your weapon against them is rational thinking. And as regards to the companies begin dishonest to share holders, we have made a start with certain companies setting standards for disclosure.

    Equity markets in India have no doubt been dominated by speculation, primarily due to the absence of the retail investor. And this was due to the limited access to relevant information. However, the information technology revolution has changed all that.

    Therefore, the systems are in place, what is stopping you from lending your hand to the growth of the Indian industry i.e. investing in equity markets?

    ‘At the dawn of history, India started on her unending quest, and trackless centuries are filled with her striving and grandeur of her success and failures. Through good and ill fortune alike, she has never lost sight of that quest forgotten the ideals which gave her strength. We end today a period of misfortunes and India discovers herself again. The achievement we celebrate today is but a step, an opening of opportunity to the greater triumphs and achievements that await us. Are we brave enough and wise enough to grasp this opportunity and accept the challenge of the future?’

    Jawaharlal Nehru, Speech in the Constituent Assembly - 14th August 1947.



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