Showing posts with label Sensex. Show all posts
Showing posts with label Sensex. Show all posts

Friday, October 05, 2012

The Road to Perdition!

Heavy Inflows of FII Money, Falling Exports due to Rising Rupee, And Widening Current Account Deficit! India is now walking on the same lane that Once Brought in the Asian Financial Crisis in 1997.

In July 1997 the South East Asian stock markets, especially South Korea, Malaysia, Thailand and Philippines, which till then were on rampage, not only came to a screeching halt, but also entered into a prolonged phase of nightmare – better known as the Asian financial crisis. Foreign Institutional Investors (FIIs), which poured in a whopping $19.1 billion into the countries’ markets in 1996 and drove these markets to record highs, flew away overnight ruining the countries’ stock markets and economic stability. So much so that while the Thai stock market lost 75% of its value, the PSE Composite in Philippines fell by around 66%.

The scenario was more or less the same in January 2008, when the Indian benchmark index Sensex after scaling a historic high of 21,206 on January 10, dwindled down to 15,322 by January 22. This time the same FIIs, who from January 1 till January 16 had infused Rs.30.59 billion into the Indian stock markets, pulled out a nerve-wracking Rs.44.65 billion in just two days, January 17 and 18. And now, the Indian stock market has again become the purple cow for the FII group. As per the Securities and Exchange Board of India (SEBI), net investments made by FIIs in the country’s equity markets has already gone past a mind-boggling Rs.1 trillion ($22 billion), pushing the market to the 21,000 level. What is most noticeable here is the way the FIIs have got hold of the nerve of the Indian market since the beginning of September 2010. Since then, while they have infused $17.3 billion, the Sensex has soared 16.5%. While industry mouthpieces like C. B. Bhave, Chairman SEBI, might not be overly worried about the situation, what cannot be ignored is the fact that while in 1996-97, India was fairly insulated from the global economy and even FII hot money vagaries, the situation is quite different currently. While the reasons for the sudden fall in the stock markets might be quite clear to industry players, a majority of global investors would fail to undertake a deeper analysis and could arbitrarily decrease the sovereign ratings for the nation – resulting in much collateral damage, international loan interest rates inclusive.

In fact, due to the increasing inflow of external capital and surging demand for the rupee, value of the domestic currency has risen sharply in terms of real effective exchange rate hurting the country’s exports. As for records, the rupee, which was trading at 47.08 against the greenback on August 31, surged almost 6% to 44.26 (as on November 8) on the back of heavy buying by the FIIs. Moreover, the strengthening of the rupee has allowed imports to surge 35.7% y-o-y in the second quarter as against a 21.7% y-o-y decline last year, pushing India’s trade deficit to rise by 33.5% to $34.2 billion in Q2FY’10 from $25.6 billion in the same quarter last fiscal. Though the exporters are now lobbying with the central bank to put a check on the rate hikes to somehow protect their competitiveness (a drop in the interest rate can put a pause to the capital inflow by reducing the difference between the prevailing near zero interest rates of the developed countries and the high interest rate of India), the Reserve Bank itself is in a helpless situation in its fight against inflation.


Source : IIPM Editorial, 2012.
For More IIPM Info, Visit below mentioned IIPM articles.
 
IIPM : The B-School with a Human Face
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Tuesday, July 31, 2012

Sensex 1991 and Sensex 2011...The Real Journey of Reforms in India

ACC, Ballarpur Industries, Bombay Dyeing, CEAT, GE Shipping, Century Textiles, Cummins India, Grasim Industries, GSK Pharma, Nestle Steel, Mukund Iron & Steel, Hindustan Motors, Indian Hotels, Indian Organic Chemicals, Indian Rayon Industries, Voltas, Zenith, Philips Electricals Company, Premier Auto, Siemens, Gujarat State Fertilisers & Chemicals

Making Sense of the Sensex & India Inc.
The sensex of 1991 has lost 70% of its constituents. however, they are not necessarily the usual suspects that form part of what we can call popular folklore!

The more things change, the more they appear to remain the same. And the more you believe propaganda being peddled as statistics, the more your chances of being mesmerized by contemporary mythology. Things are not very different when you actually sit down and analyze the kind of companies that have been entering and exiting the 30 scrip Sensex since 1991, when economic reforms were launched and the animals of entrepreneurship were unleashed.

Beyond the hype and hysteria that usually mark any coverage and analysis of India Inc. and the stock markets, let us puncture a few abiding myths about corporate India as reflected in the composition of the Sensex.

Myth number one is that old hoary chestnut about the decline and fall of Indian business families. Apparently, the unleashing of entrepreneurial energies since 1991 has triggered the emergence of new tycoons and companies and dynasties that have replaced the old business families who were so steeped in the license permit culture prevailing prior to 1991 that they had simply lost the art of competing in the marketplace. At a first glance, this interpretation does appear to be correct. Except for the Aditya Birla group, the Birlas have surely witnessed a terminal decline. Forget the Sensex, it is difficult to find them even in the list of top 100 listed companies in BSE. Once upon a time, Bombay Dyeing was a blue chip in the Sensex and Nusli Wadia a powerful name in India Inc. Alas, those glory days are gone. The Goenkas, too, have more or less vanished from the corner that holds the top industrial and corporate names of India. It is difficult to find a Singhania and almost impossible to find a Dalmia or a Modi. And yet, don’t be fooled by these disappearing acts. The Tatas and the Aditya Birla group are still there right at the top along with the Ambanis (it would be stupid to call the Ambanis a new business family now). And after years of being banished, that classic symbol of license permit raj monopoly, Bajaj Auto came back to the Sensex with a vengeance. It joined Hero Honda, and the Munjals are a business family that is older than the Ambanis. Even the Jindals find pride of place in the Sensex, and so do the Mahindras. Who says that the typical Indian business family is being elbowed out of the top echelons of India Inc? The thing is, the more things change, the more they remain the same!


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