The Hindu Business Line : Can Mt Everest get taller?

It cannot, and yet looking at the Indian stock market’s recent climb, one feels that such a development is, after all, not impossible. Some weeks ago, people were exulting over the fact that the market had hit the 15,000-mark and that a level of 20,000 was not inconceivable. On Monday, the 19,000-barrier was scaled, and now it appears that 20,000 is only a matter of time. And why only 20,000?

To this writer at least, it can only be a psychological milestone, and when it is attained the focus will shift to 23,000, and then to 25,000, and on to 30,000.

Different kettle of fish

Indeed, when one speaks of Mt Everest, the illustration is perhaps not quite proper. This is because the peak in the Himalayas has a proven height, news items now and then telling the world that it is growing taller by inches probably because of the tectonic pressures which have been acting on the region through aeons.

But the stock market is a different kettle of fish altogether because it has no scientifically measured ceiling so to speak. It can in fact rise as high as it wants to and, on occasion, also sink. So when one compares it to Everest it is nothing more than a figurative comparison basically flowing from the sentiment that it can perhaps go no higher or, alternatively, how much higher can it rise?

Unnatural development

Even so, the rise is the important thing to consider here, and that it has turned phenomenal in recent weeks there can hardly be any doubt now. In fact, it has become something of an unnatural development because there is no certain answer to the question about what is behind it. It is certainly not the economy as such which, incidentally, has been doing well for some time now. In any case, there is a steady growth in economic activity, which is not the case with the showing on the bourses.

Some people have pointed to the inflow of PN funds and have dubbed it as hot-money accretion, which may in fact be the case but which certainly is not good for the long-term stability of the Indian stock market scene. Perhaps this is the reason why the authorities are thinking of ways of controlling the inflow of such money.

Cause for worry

Whatever it is, the development is worrisome for one simple reason. The explosion in the stock market is not based on ‘real’ developments in the economy. What this essentially means is that the there is no firm basis to the sharp rise in the Sensex. Yes, the attractiveness of the Indian market to international investors is the principal driving factor for the inflow of foreign funds, which is a feather in the cap of the Indian economy because it is in direct competition with other markets all over the world. So India is being seen to be doing well, at least certainly to those who want to make a quick buck.

But this attraction, as history has shown elsewhere, is fleet-footed. So what comes in droves can also go out in a flood, leading to Black Mondays, etc, which would ring every conceivable alarm bell and result in emergency measures being taken by the authorities to control the contagion from spreading and developing into a free-fall for the international reputation of the Indian economy. Since no one wants this, it will be good to keep this in mind so that we can spare ourselves the prospect of shedding tears tomorrow.

RANABIR RAY CHOUDHURY

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