The Great Stock Market Meltdown

The Great Stock Market Meltdown

There was a time when every company dreamed of going public to access shareholder money. The biggest success story in this regard was Dhirubhai Ambani’s Reliance Industries. If Dhirubhai had not tapped shareholder enthusiasm then, filling stadiums for his AGMs in the process, we would not have Reliance, both versions, run by brothers Mukesh and Anil, in the top twenty amongst private sector companies in India today.

But he did more than succeed in his business. Dhirubhai  Ambani was the superstar of the equity cult. He delivered on a dream of ordinary shareholders growing wealthy on the strength of their investments in solid enterprise. But even when he began to rock the market there were already those who owned Tata shares. But they were heirlooms, not for selling.

Of course, the minnows spoiled the party even then by jumping on the bandwagon only to loot investors and turn sick in the shortest possible time. The market regulators were always ineffective except for a few high profile busts such as that of big bull Harshad Mehta, decades ago. Then there was Ketan Parikh later.  It only goes to show how long it has been since there was any spark in the market.

But the trend away from the comatose bourses seems to be taking hold now. The international  economic scenario in the West is going to stay down indefinitely. And India has wilfully destroyed its very promising own story.

Not only is the Government’s always ham- fisted approach to oversight , regulation, taxation, money laundering, retrospective levies etc. a major irritant and incredibly arrogant to boot, but the stock markets themselves  have lost their charm.

This is for reasons outside, in the real economy, due to disastrous policy measures, delay, confusion, hesitation, obtuseness, fear. We have seen no new all-time highs in the Sensex or Nifty since 2008. It has only been a sad little see-saw ride going nowhere in all this time.

The FIIs are disgusted, their quantum investments have plummeted, and even enthusiastic and influential domestic  players such as Rakesh Jhunjhunwala, a stock market icon, can’t seem to make money trading in shares anymore.

Most of the other big boys such as Hemendra Kothari, Nimesh Kampani, and KR Choksey, have either sold out majority stakes in their firms, or are trying to do so. There is no life in the market anymore and so they have cashed out, or want to do so - content now to sit on Boards and Advisories, or enjoy their semi-retirements.

If the big cannot sustain their interest in the exchanges, can the medium and small do so? They too have deserted the stock markets in droves.

The TV channels devoted to the markets have lost viewership as there is no shareholder cult anymore. They too will now start to close one by one or shift focus to softer news such as company profiling, CEO views, sponsorships etc.. Many have already changed their water, and not just on weekends when the magazine programmes used to be slotted, but even this can’t flog a dead horse.

Instead of growing the shareholder base and promoting market investment amongst the public, unimaginative Government policies have shrunk it since 2008. Every sector of the economy such as automobiles are gasping for breath. The auto sector is significant also because it has attracted much FDI which is now not doing so well.

But still, there is faith in the future of the real economy based on the sheer size of the Indian market, and the 1.21 billion population. The old established MNC players are using this lull to try and consolidate. Private equity is the name of the game now and large MNCs and domestic MNcs are using their money more and more rather than public shareholder equity.

Some, with solid fundamentals such as Unilever are buying back their shares with a view to going private once again. Recent reports indicate Unilever is not the only one willing to lay out billions of dollars to buy back shares towards making up majority holdings.

So, consider this, if the MNCs and blue chips exit the trading arena, what will the stock markets do with themselves? And with total lack of enthusiasm amongst the investing public, how will the PSUs divest shareholding to the public?

This Government has failed pervasively on all fronts. The country’s security is compromised. The business environment is vitiated. The political hold of the central Government, already ravaged by the foolishness of diarchy, is weak, and dependent on restive outside support. Many of the states are in effect bankrupt. The focus of the political classes is on assembly elections and the general elections bound to take place within a year. There is little regard or attention being paid to the economy at present.

It is a cascading effect of non-performance and lack of vision, an ad hoc limping onwards as a pale shadow of governance. Everything is waiting for the new Government at the centre including India’s stock markets.

(832 words)

May 2nd, 2013

Gautam Mukherjee