The Sensex will touch one million by 2050

Vivek Kaul 

So, the bosses are really mad at us,” said Harshad, the senior most analyst at the brokerage firm.
“Oh, why?” asked Ketan. “What did we do now? I have recommended every stock that they wanted me to recommend.”
I guess it must have to do with all the Sensex forecasts. There was even one report which predicted that the index will touch one lakh points by 2020,” explained Rakesh.
“Yeah and we haven’t put out one,” said Harshad.
“You know I don’t like these Indian numbers,” said Samir, butting in on the video-conference from Singapore. “This
lakh-shak is too small. Let’s talk of at least a million.”
“Samir,” said Ketan. “How come you are not on TV today, driving up the market?”
“Guys, lets get serious,” said a rather worried Harshad. “We need to do something.”
Arre this prediction business is too risky,” said Rakesh. “I predicted in 2007 that the Sensex will touch 50,000 points in six-seven years.”
“So?” asked Samir.
“Well, we are only half way there.”
“You forgot the first law of forecasting, which it to make as many forecasts as possible and then publicise the ones you get right. How do you think I have managed to survive so long?” explained Samir.
“Guys, we are deviating from the point,” said Harshad. “We need to do some damage control.”
“Like what?” asked Ketan.
“Like coming up with our own Sensex forecast,” answered Harshad.
“Then, let’s follow the second rule of forecasting,” said Samir.
“Second rule?” asked Rakesh.
“Oh. Let’s say that the Sensex will touch one million points by 2050.”
“But what is the second rule of forecasting?” asked a frustrated Harshad.
“Oh, it is to make a forecast very far into the future, so that even if we get it wrong, nobody would know that we had made the forecast in the first place,” explained Samir with a chuckle.
“Actually, the Sensex needs to give a return of just 10.8% per year for it to touch one million points by 2050,” said Ketan, quickly running the numbers on the excel sheet. “So this is one forecast we will most likely get right.”
Nah, but 2050 is too far off,” said Harshad. “While we can say that, we will also need something which is a tad nearer.”
“How about the Sensex touching one lakh points by 2022,” said Rakesh, not having learnt from his previous mistake.
“But why 2022?” asked Ketan. “And not 2021 or 2023?”
“Oh, in 2022, we complete 75 years of freedom,” replied Rakesh.
“So?” asked Samir.
“Mr Bachchan also turns 80 that year,” said Ketan.
“Guys, where is this heading,” said Harshad. “You will get me fired. I still have EMIs to pay.”
“Actually Mr Bachchan reminds me of a line from the film
Amar, Akbar, Anthony,” said Ketan.
Ye kya ho raha hai?” asked Harshad, having lost control of the meeting totally.
“So, y
ou see, the whole country of the system is juxtaposition by the haemoglobin in the atmosphere because you are a sophisticated rhetorician intoxicated by the exuberance of your own verbosity,” said Ketan.
“Man, I never knew you could say that,” said Samir, jumping from his seat. “I tried
rattoing it for almost a year and then gave up.”
“Guys, guys, but what is the point?” asked a beleaguered Harshad.
“The point is that we need to come up with some sophisticated sounding gibberish to predict that Sensex will touch one lakh points by 2022,” explained Rakesh.
“Ah you read my mind so well,” complemented Ketan.
“So, what is the story?” asked Harshad.
“It’s simple. The Sensex needs to give a return of 17.8 to 20.3% returns per year if it needs to touch one lakh points in 2022,” explained Ketan, quickly using the excel sheet again.
“And?” asked Samir, totally flummoxed about where this was going.
“If we look at Sensex since 1979, it has given a return of a little over 17% per year on an average,” said Ketan.
“But 17% is not enough. We need more than that,” said Harshad, feeling a tad relaxed now.
“Well, we can add a few percentage points, as the new government premium,” said Ketan.
“New government premium?” asked Samir, feeling totally left out in Singapore.
“You need to comeback Samir,” said Rakesh. “You are not getting even the most basic stuff these days.”
“Let me explain,” said Ketan. “Basically we will say that the new government will set right everything that is wrong with the Indian economy. And that will mean that the Sensex will rise at 20% per year over the next eight years, instead of the usual 17%.”
“Brilliant story guys,” exclaimed Samir.
“So, I guess we have our story,” said Rakesh. “Let me just go and check how my value picks are doing. I had bought some of these stocks in the late 1980s.”
“Wait, wait, guys. Let me add the icing on the cake,” interrupted Samir.
“But make it quick,” said Harshad.
“I think along with the story, we also need to launch a new M.O.D.I. fund,” said Samir.
“Eh, what is that?” asked Ketan, irritated by the fact that Samir was butting in to take all the credit. “Oh M.O.D.I. fund stands for
Multiple Opportunities in the Development of India fund,” said Samir.
“The name will help us raise a lot of money.”
“Ah, Samir, the I love way you give it a spin,” said Harshad. “Its all about Modi anyway.”
The article originally appeared on www.FirstBiz.com on June 16, 2014
(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek) 

The Sensex will touch one million by 2050

Vivek Kaul 

So, the bosses are really mad at us,” said Harshad, the senior most analyst at the brokerage firm.
“Oh, why?” asked Ketan. “What did we do now? I have recommended every stock that they wanted me to recommend.”
I guess it must have to do with all the Sensex forecasts. There was even one report which predicted that the index will touch one lakh points by 2020,” explained Rakesh.
“Yeah and we haven’t put out one,” said Harshad.
“You know I don’t like these Indian numbers,” said Samir, butting in on the video-conference from Singapore. “This
lakh-shak is too small. Let’s talk of at least a million.”
“Samir,” said Ketan. “How come you are not on TV today, driving up the market?”
“Guys, lets get serious,” said a rather worried Harshad. “We need to do something.”
Arre this prediction business is too risky,” said Rakesh. “I predicted in 2007 that the Sensex will touch 50,000 points in six-seven years.”
“So?” asked Samir.
“Well, we are only half way there.”
“You forgot the first law of forecasting, which it to make as many forecasts as possible and then publicise the ones you get right. How do you think I have managed to survive so long?” explained Samir.
“Guys, we are deviating from the point,” said Harshad. “We need to do some damage control.”
“Like what?” asked Ketan.
“Like coming up with our own Sensex forecast,” answered Harshad.
“Then, let’s follow the second rule of forecasting,” said Samir.
“Second rule?” asked Rakesh.
“Oh. Let’s say that the Sensex will touch one million points by 2050.”
“But what is the second rule of forecasting?” asked a frustrated Harshad.
“Oh, it is to make a forecast very far into the future, so that even if we get it wrong, nobody would know that we had made the forecast in the first place,” explained Samir with a chuckle.
“Actually, the Sensex needs to give a return of just 10.8% per year for it to touch one million points by 2050,” said Ketan, quickly running the numbers on the excel sheet. “So this is one forecast we will most likely get right.”
Nah, but 2050 is too far off,” said Harshad. “While we can say that, we will also need something which is a tad nearer.”
“How about the Sensex touching one lakh points by 2022,” said Rakesh, not having learnt from his previous mistake.
“But why 2022?” asked Ketan. “And not 2021 or 2023?”
“Oh, in 2022, we complete 75 years of freedom,” replied Rakesh.
“So?” asked Samir.
“Mr Bachchan also turns 80 that year,” said Ketan.
“Guys, where is this heading,” said Harshad. “You will get me fired. I still have EMIs to pay.”
“Actually Mr Bachchan reminds me of a line from the film
Amar, Akbar, Anthony,” said Ketan.
Ye kya ho raha hai?” asked Harshad, having lost control of the meeting totally.
“So, y
ou see, the whole country of the system is juxtaposition by the haemoglobin in the atmosphere because you are a sophisticated rhetorician intoxicated by the exuberance of your own verbosity,” said Ketan.
“Man, I never knew you could say that,” said Samir, jumping from his seat. “I tried
rattoing it for almost a year and then gave up.”
“Guys, guys, but what is the point?” asked a beleaguered Harshad.
“The point is that we need to come up with some sophisticated sounding gibberish to predict that Sensex will touch one lakh points by 2022,” explained Rakesh.
“Ah you read my mind so well,” complemented Ketan.
“So, what is the story?” asked Harshad.
“It’s simple. The Sensex needs to give a return of 17.8 to 20.3% returns per year if it needs to touch one lakh points in 2022,” explained Ketan, quickly using the excel sheet again.
“And?” asked Samir, totally flummoxed about where this was going.
“If we look at Sensex since 1979, it has given a return of a little over 17% per year on an average,” said Ketan.
“But 17% is not enough. We need more than that,” said Harshad, feeling a tad relaxed now.
“Well, we can add a few percentage points, as the new government premium,” said Ketan.
“New government premium?” asked Samir, feeling totally left out in Singapore.
“You need to comeback Samir,” said Rakesh. “You are not getting even the most basic stuff these days.”
“Let me explain,” said Ketan. “Basically we will say that the new government will set right everything that is wrong with the Indian economy. And that will mean that the Sensex will rise at 20% per year over the next eight years, instead of the usual 17%.”
“Brilliant story guys,” exclaimed Samir.
“So, I guess we have our story,” said Rakesh. “Let me just go and check how my value picks are doing. I had bought some of these stocks in the late 1980s.”
“Wait, wait, guys. Let me add the icing on the cake,” interrupted Samir.
“But make it quick,” said Harshad.
“I think along with the story, we also need to launch a new M.O.D.I. fund,” said Samir.
“Eh, what is that?” asked Ketan, irritated by the fact that Samir was butting in to take all the credit. “Oh M.O.D.I. fund stands for
Multiple Opportunities in the Development of India fund,” said Samir.
“The name will help us raise a lot of money.”
“Ah, Samir, the I love way you give it a spin,” said Harshad. “Its all about Modi anyway.”
The article originally appeared on www.FirstBiz.com on June 16, 2014
(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek) 

Sensex falls 4% in a week but easy money rally will be back soon

deflationVivek Kaul  

The BSE Sensex has now been falling for close to a week now. As I write this, it’s trading at around 20,000 points, having fallen by nearly 4% since January 27, 2014.
The main cause of this fall has been the decision of the Federal Reserve of the United States, the American central bank, to go slow on printing money. In a meeting on January 29, 2014, the Fed decided to print $65 billion a month, in comparison to $75 billion earlier.
By doing this, the Fed signalled that it would be going slow on the easy money policy that it had unleashed a few years back, in order to revive the stagnating American economy. The money printed by the Federal Reserve was used to buy government bonds and mortgage backed securities, in order to ensure that there enough money going around in the financial system. This led to low interest rates and the hope that people would borrow and spend more money, and thus help in reviving the economy.
Investors had been borrowing at these low interest rates and investing money all over the world. But with the Federal Reserve deciding to go slow on money printing (or what it calls tapering), this game of easy money is likely to come to an end, soon. At least, that is the way the markets seem to be thinking. And that to a large extent explains why the Sensex has fallen by close to 4% in a week’s time.
One of the major reasons behind the Federal Reserve’s decision to print less money has been the falling rate of unemployment. For the month of December 2013, the rate of unemployment was down to 6.7%. In comparison, in December 2012, the rate had stood at 7.9%. This is the lowest unemployment rate that the American economy has seen, since October 2008, which was more or less the time when the financial crisis started. This measure of unemployment is referred to as U3.
A major reason for the fall in the unemployment numbers has been the fact that a lot of people have been dropping out of the workforce. In December 2013, nearly 3,47,000 workers left the labour force because they could not find jobs, and hence, were no longer counted as unemployed. This took the number of Americans not working to a record 102 million. As Peter Ferrara puts it on Forbes.com “In fact, 
all of the decline in the U3 headline unemployment rate since President Obama entered office has been due to workers leaving the work force, and therefore no longer counted as unemployed, rather than to new jobs created…Those 102 million Americans are the human face of an employment-population ratio stuck at a pitiful 58.6%. In fact, more than 100 million Americans were not working in Obama’s workers’ paradise for all of 2013 and 2012.” Interestingly, the labour force participation rate, which is a measure of the proportion of working age population in the labour force, has slipped to 62.8%. This is the lowest since February 1978. Also, in December 2013, the American economy added only 74,000 jobs. This was lower than the 1,96,000 jobs that Wall Street had been expecting and was the lowest number since January 2011.
What this means is that even though the rate of unemployment is at its lowest level since October 2008, things are not as well as they first seem to be. Interestingly, in December 2013, the U6 “rate of unemployment” which includes individuals who have stopped looking for jobs because they simply can’t find one and individuals working part-time even though they could work full-time, stood at 13.1%. This was about double the official rate of unemployment of 6.7%. Interestingly, through much of 2013, the U6 rate of unemployment was double the official U3 rate of unemployment.
What all this tells us is that the unemployment scenario in the US is much worse than it actually looks like.
In this scenario it is unlikely that the Federal Reserve can keep tapering or reducing the amount of money that it prints every month. Other than the rate of unemployment, the other data point that the Federal Reserve looks at is consumer price inflation as measured by personal consumption expenditure(PCE) deflator. The PCE deflator for the month of December 2013 stood at 1.1%. This is well below the Federal Reserve target of 2%.
If the PCE deflator has to come anywhere near the Federal Reserve’s target of 2%, the current easy money policy of the Federal Reserve needs to continue. As Bill Gross, managing director and co-CIO of PIMCO wrote in a recent column “the PCE annualized inflation rate– is released near the 20th of every month but you will not see CNBC or Bloomberg analysts waiting with bated breath for its release. I do. I consider it the critical monthly statistic for analyzing Fed policy in 2014. Why? Bernanke, Yellen and their merry band of Fed governors and regional presidents have told us so. No policy rate hike until both unemployment and inflation thresholds have been breached.”
Given these reasons, it is safe to say that foreign investors will continue to be able to raise money at low interest rates in the United States, in the months to come. Hence, the recent fall in the Sensex is at best a blip. The easy money rally will soon be back.
The article originally appeared on www.firstbiz.com on February 4, 2014

(Vivek Kaul is a writer. He tweets @kaul_vivek) 

If gold is a bad investment, so are stocks

 gold

Vivek Kaul 

Gold is a bad investment.
This is something that is being often heard lately. The naysayers have all come out of the closet after the recent fall in price of the yellow metal. While it was rallying, they didn’t have a word to say. 
One of the main reasons offered in favour of gold being a bad investment is that if we take official inflation into account, the yellow metal has still not crossed the price of $850 an ounce (one troy ounce equals 31.1 grams) that it reached in 1980. 
As Nick Barisheff, President and CEO of 
Bullion Management Group writes in his new book $10,000 Gold: Why Gold’s Inevitable Rise Is the Investor’s Safe Heaven “It seems that everyone has a story about someone they know who bought gold at $850 per ounce in 1980 and had to wait twenty eight years to break even. If we take “official” inflation into account, the gold price would need to reach $2,200 for that to happen.” 
So in other words the individual who bought gold when it touched a peak price of $850 per ounce is still to make money. Seems like a fair point. 
Now lets try and dissect this argument a little. Gold reached $850 per ounce on January 21, 1980, a then all time high. A day earlier it had closed at a price of $835 per ounce. And a day later it fell to a price of $737.5 per ounce.
Source: www.gold.org
As the above table shows, the price of gold remained above $800 per ounce only for two days. In 1980, the average price of gold was $612.5 per ounce. In 1979, the average price of gold was $306.9 per ounce. In 1978, it was much lower at $193 per ounce. 
So the point is only those people who bought gold around its very short term peak price of $850 per ounce, would have lost money. And that cannot be an effective argument against buying gold. In fact, that may happen to almost anything that is bought at its peak price. 
“If you buy an investment a cyclical peak, you will have to wait a long time to break even. The Dow Jones Industrial Average (which is America’s best known stock market index) did not surpass its 1929 peak until 1953 (twenty four years later). It did not surpass its 1968 peak until 1982 (fourteen years later),” writes Barisheff. 
Or lets take the case of the Japanese stock market index, Nikkei 225. On May 15, 2013, it closed at 15,096 points, and this when it has rallied by nearly 67.7% from mid November 2012. But it is still down 61.3% rom an intra-day high of 38,957 points that it achieved on December 29,1989. So anyone who had invested in the Japanese stock market at its peak in December 1989, and held onto his investment, would still be losing money. 
And then there is also the case of Nasdaq Composite, an American stock market index, which is a favourite with technology companies. On May 14, 2013, this index closed at 3462.61 points. It is still down by nearly 32.5% from an all time high of 5132.32 points achieved on March 10, 2000. “This even after a number of its stocks, which had become completely worthless were replaced,” writes Barisheff. 
Lest I be accused of giving examples of only foreign stock market indices, lets look at something closer to home. The BSE Sensex touched a then all time high of 4630.54 points on September 12,1994. This level was crossed nearly five years later in July 1999, when the dotcom boom was at its peak. In fact those who had invested in the Indian stock market at its 1994 peak would have started to make some real money only by 2005, after more than ten years of holding onto their investment. 
More recently, anyone who had invested in Indian stocks in December 2007, when the Sensex reached its then peak of 20,287 points, would still be losing money five years later. On May 15, 2013, the Sensex closed at 20,212.96 points. 
So much for stocks being a long term investment. And there is more to consider. As Barisheff points out “One cannot compare gold held in a vault to an investment in stocks. Stocks cannot be compared to gold when it comes to risk. Virtually all of the stocks that existed in 1700 no longer exist today, so at some point investors and their descendants would have lost their entire investment.”
What also happens is that indices keep replacing stocks which are not doing well or have become completely worthless (as happened in the case of Nasdaq Composite). As Barisheff points out “Of the thirty stocks that made up the Dow (in reference to the Dow Jones Industrial Average) in 1929, only General Electric and Exxon Mobil (formerly Standard Oil) still form a part of the Dow today. Of the thirty stocks that made up Dow in 2000, only twenty-three are still Dow components today. If investors buy stock and that stock declines to zero, they lose their investment. They cannot simply replace it with another stock and ignore the loss (which is what indices do).”
Another regular criticism against gold is that it does not pay any dividends or interest. This was the explanation given by the Bank of England in 1998, when it sold half of its gold reserves. “The British sold 395 tonnes of gold at an average price of $275.6 per ounce, and then the price of gold rose nearly 700 percent… Britain sold its gold for a total of $3.5 billion. At $1,900.3 an ounce, gold’s highest price of the last decade, this gold would be worth about $24 billion,” writes Barisheff.
Of course $24 billion would have more than taken care of any interest income that the Bank of England would have earned by investing the $3.5 billion that it got by selling gold. Also the gold lying in the vault is not being put at any risk. As Barisheff puts it “Again, gold, like currency or any other asset that sits in a vault, will not earn interest or dividends. However, it is also not at risk. No asset class generates income unless give up possession of your capital and take the risk of not getting it back. The term “investing” implies risking for the sake of potential profits.” 
This is something worth thinking about, the next time you hear a so called expert saying, gold is a bad investment.

The article originally appeared on www.firstpost.com on May 16, 2013

(Vive
k Kaul is a writer. He tweets @kaul_vivek) 

 

 

 

The only stock tip you will ever need: Watch the Dow

Vivek Kaul
The Dow Jones Industrial Average (DJIA), America’s premier stock market index, has been quoting at all-time-high levels. On 7 March 2013, it closed at 14,329.49 points. This has happened in an environment where the American economy and corporate profitability has been down in the dumps.
The Indian stock markets too are less than 10 percent away from their all-time peaks even though the economy will barely grow at 5 percent this year.
All the easy money created by the Federal Reserve is landing up in the stock market. So the stock market is going up because there is too much money chasing stocks. ReutersIn this scenario, should one  dump stocks or buy them?
The short answer is simple: as long as the other markets are doing fine, we will do fine too. The Indian market’s performance is more closely linked to the fortunes of other stock markets than to Indian economic performance.
So watch the world and then invest in the Sensex or Nifty. You can’t normally go wrong on this.
Let’s see how the connection between the real economy and the stock market has broken down after the Lehman crisis.
The accompanying chart below proves a part of the point I am trying to make. It tells us that the total liabilities of the American government are huge and currently stand at 541 percent of GDP. The American GDP is around $15 trillion. Hence the total liability of the American government comes to around $81 trillion (541 percent of $15 trillion).
Source: Global Strategy Weekly, Cross Asset Research, Societe Generate, March 7, 2013
Source: Global Strategy Weekly, Cross Asset Research, Societe Generate, March 7, 2013
The total liability of any government includes not only the debt that it currently owes to others but also amounts that it will have to pay out in the days to come and is currently not budgeting for.
Allow me to explain.  As economist Laurence Kotlikoff wrote in a column in July last year, “The 78 million-strong baby boom generation is starting to retire in droves. On average, each retiring boomer can expect to receive roughly $35,000, adjusted for inflation, in Social Security, Medicare, and Medicaid benefits. Multiply $35,000 by 78 million pairs of outstretched hands and you get close to $3 trillion per year in costs.”
The $3trillion per year that the American government needs to pay its citizens in the years to come will not come out of thin air. In order to pay out that money, the government needs to start investing that money now. And that is not happening. Hence, this potential liability in the years to come is said to be unfunded. But it’s a liability nonetheless. It is an amount that the American government will owe to its citizens. Hence, it needs to be included while calculating the overall liability of the American government.
So the total liabilities of the American government come to around $81 trillion. The annual world GDP is around $60 trillion. This should give you, dear reader, some sense of the enormity of the number that we are talking about.
And that’s just one part of the American economic story. In the three months ending December 2012, the American GDP shrank by 0.1 percent. The “U3” measure of unemployment in January 2013 stood at 7.9 percent of the labour force. There are various ways in which the Bureau of Labour Standards in the United States measures unemployment. This ranges from U1 to U6. The official rate of unemployment is the U3, which is the proportion of the civilian labour force that is unemployed but actively seeking employment.
U6 is the broadest definition of unemployment and includes workers who want to work full-time but are working part-time because there are no full-time jobs available. It also includes “discouraged workers”, or people who have stopped looking for work because economic conditions make them believe that no work is available for them. This number for January, 2013, stood at 14.4  percent.
The business conditions are also deteriorating. As Michael Lombardi of Profit Confidential recently wrote, “As for business conditions, they appear bright only if you look at the stock market. In reality, they are deteriorating in the US economy. For the first quarter of 2013, the expectations of corporate earnings of companies in the S&P 500 have turned negative. Corporate earnings were negative in the third quarter of 2012, too.”
The average American consumer is not doing well either. “Consumer spending, hands down the biggest contributor of economic growth in the US economy, looks to be tumbling. In January, the disposable income of households in the US economy, after taking into consideration inflation and taxes, dropped four percent—the biggest single-month drop in 20 years!,” writes Lombardi.
Consumption makes up for nearly 70 percent of the American GDP. And when the American consumer is in the mess that he is where is the question of economic growth returning?
So why is the stock market rallying then? A stock market ultimately needs to reflect the prevailing business and economic conditions, which is clearly not the case currently.
The answer lies in all the money that is being printed by the Federal Reserve of the United States, the American central bank. Currently, the Federal Reserve prints $85 billion every month, in a bid to keep long-term interest rates on hold and get the American consumer to borrow again. The size of its balance-sheet has touched nearly $3 trillion. It was at around $800 billion at the start of the financial crisis in September 2008.
As Lombardi puts it, “When trillions of dollars in paper money are created out of thin air and interest rates are simultaneously reduced to zero, where else would investors put their money?”
All the easy money created by the Federal Reserve is landing up in the stock market.
So the stock market is going up because there is too much money chasing stocks. The broader point is that the stock markets have little to do with the overall state of economy and business.
This is something that Aswath Damodaran, valuation guru, and professor at the Columbia University in New York, seemed to agree with, when I asked him in a recent interview about how strong is the link between economic growth and stock markets? “It is getting weaker and weaker every year,” he had replied.
This holds even in the context of the stock market in India. The economy which was growing at more than 8 percent per year is now barely growing at 5 percent per year. Inflation is high at 10 percent. Borrowing rates are higher than that. When it comes to fiscal deficit we are placed 148 out of the 150 emerging markets in the world. This means only two countries have a higher fiscal deficit as a percentage of their GDP, in comparison to India. Our inflation rank is around 118-119 out of the 150 emerging markets.
More and more Indian corporates are investing abroad rather than in India (Source: This discussion featuring Morgan Stanley’s Ruchir Sharma and the Chief Economic Advisor to the government Raghuram Rajan on NDTV)But despite all these negatives, the BSE Sensex, India’s premier stock market index, is only a few percentage points away from its all-time high level.
Sharma, Managing Director and head of the Emerging Markets Equity team at Morgan Stanley Investment Management, had a very interesting point to make. He used thefollowing slide to show how closely the Indian stock market was related to the other emerging markets of the world.
d
India’s premier stock market index, is only a few percentage points away from its all-time high level.
As he put it, “It has a correlation of more than 0.9. It is the most highly correlated stock market in the entire world with the emerging market averages.”
So we might like to think that we are different but we are not. “We love to make local noises about how will the market react pre-budget/post-budget and so on, but the big picture is this. What drives a stock market in the short term, medium term and long term is how the other stock markets are doing,” said Sharma. So if the other stock markets are going up, so does the stock market in India and vice versa.
In fact, one can even broaden the argument here. The state of the American stock market also has a huge impact on how the other stock markets around the world perform. So as long as the Federal Reserve keeps printing money, the Dow will keep doing well. And this in turn will have a positive impact on other markets around the world.
To conclude let me quote Lombardi of Profit Confidential again “I believe the longer the Federal Reserve continues with its quantitative easing and easy monetary policy, the bigger the eventual problem is going to be. Consider this: what happens to the Dow Jones Industrial Average when the Fed stops printing paper money, stops purchasing US bonds, and starts to raise interest rates? The opposite of a rising stock market is what happens.”
But the moral is this: when the world booms, India too booms. Keep your fingers crossed if the boom is lowered some time in the future.
The article originally appeared on www.firstpost.com on March 8, 2013.
Vivek Kaul is a writer. He tweets @kaul_vivek