Time to Fold

By Ramesh Akkineni

from Jadu Economics by Surjit S Bhalla

"There are seven reasons why, as someone who believed in the Indian story when it (perhaps) did not even exist, and who continues to believe in the fundamentals story (it will only get better), I am worried about the stock market. First, that stock markets, by definition, are supposed to anticipate the future at least six months ahead—the familiar “discounting” of what will happen the day after.

Rough calculations show that the structural interest rate decline was factored in when the Sensex was in the low 6,000 range. There is also the growth in earnings per share (the restructuring story), a fair amount of which has also been discounted. That is one major reason why the market is close to 8,000."

"The fourth reason to be worried is that, not unlike 2000, there is serious talk of a “paradigm” shift in the Indian stock market. For paradigm shift, read the implication that do not worry if you purchase a stock for Rs 100—maybe it will go to Rs 95, at which time you can always buy more, because for sure the market is going to 150.

The fifth reason is that for quite some time now, people have been asking for stock tips—tips not to make money, but how to make the most money! The sixth reason is the euphoria as reflected by magazine covers screaming Sensex—10,000. The air is so thin out here and yet there is strength for the scream.

The final seventh reason to be really, really worried is that today there are seasoned and savvy and international market professionals who do not think twice about handing over their money to 16-year-olds to manage. When this happens, and here I am showing an age bias and being youth incorrect, it is time (to borrow that exquisite phrase from the ultimate gambling game, poker) to fold ’em."

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