Stocks, currencies of emerging markets set to take a pounding: Shankar Sharma
First Global's Vice-chairman says India is not the only country experiencing a slowdown. Every single country in the world is sitting on a growth cliff, and has been doing so since 2008.
India is a strange, insular, inward looking country. Indians, like Americans, remain absorbed in local news, local gossip, local movies, local politics, economics and markets. And as a result, we find ourselves becoming euphoric or hysteric based on how we see our immediate situation and surroundings, instead of stepping back and taking the larger view.
Today, it is this larger perspective that is required. But strangely enough, the professionals engaged in economic analysis - fund managers, economists, analysts - have forgotten that forming opinions without facts or data backing them is dangerous.
Just looking at the hahakaar (there is really no English word that captures the raging emotions of today), one could be pardoned for thinking that India is the only country in the world experiencing a slowdown, is grappling with corruption, a falling currency, etc.
This is simply not the case.
Every single country is sitting on a growth cliff, and has been doing so since 2008. Every single country has a dissatisfied populace. Every single country is seeing joblessness, rising crime, protests and corruption.
But this goes against the popular narrative in the Indian media. India's currency is in free fall , goes the narrative. But try telling people that this is true of several countries and you may as well be hitting a brick wall. India's economic growth has slowed down sharply but really, I can't see any worthwhile country whose growth rates have accelerated in the past five years.
India is totally corrupt. Then why are there so many protests in Brazil, Russia, Turkey, Wall Street (the Occupy Wall Street movement), Europe? What about the rampant corruption in China perpetrated by Communist Party officials, involving numbers that are staggering?
As always, the numbers tell the story. But the human mind is terrible at accepting numbers as a basis for establishing or arguing a point of view. As Daniel Kahnemann writes in his brilliant book Thinking, Fast and Slow, the human brain is wired to accept and swallow easy narratives, catchy stories, not data or facts.
And the easy story is that India has been messed up by the United Progressive Alliance (UPA) government, and that times under the Bharatiya Janata Party-led National Democratic Alliance (NDA) in the pre-2004 period were much better. Relevant data offers evidence that is much to the contrary, but without going into the mess the NDA left India in, let's simply focus on the data on the UPA's rule, and compare it with that of the world.
India, since 2004, has grown its GDP at 7.7 per cent CAGR (Compound Annual Growth Rate). Only China beats it, and that too marginally, by around 1.8 percentage points. The other members of the BRIC (Brazil, Russia, India, China) pack are not even close. Brazil and Russia have hugged the zero to 2.5 per cent line on a compound basis - a shame, considering they were hugely rich in natural resources, unlike India which has insufficient resources for its appetite.
But the most important thing is this: India has grown this fast, despite lowering its debt/GDP from 90 per cent under the NDA to under 70 per cent now. And this has been achieved at an inflation rate of seven per cent. Even more importantly, interest/budgetary receipts have been reduced from 50 per cent to 30 per cent under the UPA. This has had the powerful impact of freeing up resources for social welfare schemes, without raising the debt/GDP ratio. Countries would die for such fiscal management, but try saying that to anybody these days without getting your head chewed off.
In contrast, China has grown a tad faster, but has completely messed up its internal balance sheet, by ballooning its debt/GDP to over 150 per cent - a level widely considered as being the point of no return. The data is unequivocal. India has handled the massive global growth slowdown the best among the major economies.
That said, India messed up on gold, which has, in turn, messed up our external situation. Gold is a non-essential, and should have been put on a 30 to 50 per cent import duty a year back. This soft approach of two percentage point increases in duties is insufficient, and came late.
Here is what I see ahead: a world sitting on a growth cliff. The same goes for markets. I am very certain that the emerging markets bull run that started in 2003 is now in its last few weeks of life. The period from here on will be ugly, perilous, and severely inimical to positive returns.
In such a scenario, no levels for markets and currencies are too low or sacrosanct. Corporate India will pay for its sins of over-leverage dearly. At the best of times, most Indian companies have had little respect for capital. In times ahead, a drop of capital will be more precious than a drop of molten gold.
I remain convinced that many of our banks will see sharp cuts in their networth as large amounts of corporate and retail debt go bad. Our banks have had it too easy for too long.
In conclusion, hiding your money under your mattress may be the safest investment strategy to employ.
The author is Vice Chairman and Joint Managing Director, First Global
Today, it is this larger perspective that is required. But strangely enough, the professionals engaged in economic analysis - fund managers, economists, analysts - have forgotten that forming opinions without facts or data backing them is dangerous.
Just looking at the hahakaar (there is really no English word that captures the raging emotions of today), one could be pardoned for thinking that India is the only country in the world experiencing a slowdown, is grappling with corruption, a falling currency, etc.
This is simply not the case.
I am very certain that the emerging markets bull run that started in 2003 is now in its last few weeks of life. The period from here on will be ugly, perilous, and severely inimical to positive returns: Shankar Sharma
But this goes against the popular narrative in the Indian media. India's currency is in free fall , goes the narrative. But try telling people that this is true of several countries and you may as well be hitting a brick wall. India's economic growth has slowed down sharply but really, I can't see any worthwhile country whose growth rates have accelerated in the past five years.
India is totally corrupt. Then why are there so many protests in Brazil, Russia, Turkey, Wall Street (the Occupy Wall Street movement), Europe? What about the rampant corruption in China perpetrated by Communist Party officials, involving numbers that are staggering?
As always, the numbers tell the story. But the human mind is terrible at accepting numbers as a basis for establishing or arguing a point of view. As Daniel Kahnemann writes in his brilliant book Thinking, Fast and Slow, the human brain is wired to accept and swallow easy narratives, catchy stories, not data or facts.
And the easy story is that India has been messed up by the United Progressive Alliance (UPA) government, and that times under the Bharatiya Janata Party-led National Democratic Alliance (NDA) in the pre-2004 period were much better. Relevant data offers evidence that is much to the contrary, but without going into the mess the NDA left India in, let's simply focus on the data on the UPA's rule, and compare it with that of the world.
India, since 2004, has grown its GDP at 7.7 per cent CAGR (Compound Annual Growth Rate). Only China beats it, and that too marginally, by around 1.8 percentage points. The other members of the BRIC (Brazil, Russia, India, China) pack are not even close. Brazil and Russia have hugged the zero to 2.5 per cent line on a compound basis - a shame, considering they were hugely rich in natural resources, unlike India which has insufficient resources for its appetite.
But the most important thing is this: India has grown this fast, despite lowering its debt/GDP from 90 per cent under the NDA to under 70 per cent now. And this has been achieved at an inflation rate of seven per cent. Even more importantly, interest/budgetary receipts have been reduced from 50 per cent to 30 per cent under the UPA. This has had the powerful impact of freeing up resources for social welfare schemes, without raising the debt/GDP ratio. Countries would die for such fiscal management, but try saying that to anybody these days without getting your head chewed off.
In contrast, China has grown a tad faster, but has completely messed up its internal balance sheet, by ballooning its debt/GDP to over 150 per cent - a level widely considered as being the point of no return. The data is unequivocal. India has handled the massive global growth slowdown the best among the major economies.
That said, India messed up on gold, which has, in turn, messed up our external situation. Gold is a non-essential, and should have been put on a 30 to 50 per cent import duty a year back. This soft approach of two percentage point increases in duties is insufficient, and came late.
Here is what I see ahead: a world sitting on a growth cliff. The same goes for markets. I am very certain that the emerging markets bull run that started in 2003 is now in its last few weeks of life. The period from here on will be ugly, perilous, and severely inimical to positive returns.
In such a scenario, no levels for markets and currencies are too low or sacrosanct. Corporate India will pay for its sins of over-leverage dearly. At the best of times, most Indian companies have had little respect for capital. In times ahead, a drop of capital will be more precious than a drop of molten gold.
I remain convinced that many of our banks will see sharp cuts in their networth as large amounts of corporate and retail debt go bad. Our banks have had it too easy for too long.
In conclusion, hiding your money under your mattress may be the safest investment strategy to employ.
The author is Vice Chairman and Joint Managing Director, First Global
