MARKET PERSPECTIVE

By J Mulraj

Dec 23-29, 2023

All I wanna say is that they don’t really care about us

CEBR, a leading British consultancy, forecasts that India will become the world’s #3 economy by 2032, and the largest, by 2100. That’s great news, and the reason why investors, domestic and foreign, pour in money in our stock market.

CEBR warns, though, that it’s forecast is incumbent upon how well Government  deals with some challenges, including poverty reduction, inequality,  human capital and infrastructure improvement and environmental sustainability.

To those challenges we must add protection of minority shareholders and the judicial reform to ensure it. India fails on both measures. Individual investors agree with the sentiments expressed by Michael Jackson that ‘they don’t really care about us’!

So India’s potential, and desire, to become an economic superpower, will be thwarted unless this Government sincerely addresses these two concerns.

Consider, for example, the 5 year R.I. (Rigorous Imprisonment) imposed recently by an Additional Chief Metropolitan Magistrate on 3 executives of a private software firm, who duped Bank of India of Rs 2 crores. The founder CEO opened 149 bank accounts in the names of fake employees and took loans under Star Personal Loans scheme, which offers quick loan disbursal (hence poor due diligence…wonder if any bank officer verified by visiting the office) and with no collateral. The fraudster deserved punishment, and got it.

But that’s because the victim, Bank of India, is a Government owned bank! The comparison with cases of victims of Ponzi schemes, who are individuals, throws up the odious differential treatment.

Take the case of NSEL, a commodity exchange, authorized by the Government, which duped 13000 individual investors, and some companies, in a Ponzi scheme, ten years ago. NSEL was wholly owned by Financial Technologies Ltd., now called 63 Moons, which controlled its management.

What was regulator SEBI doing to prevent the NSEL scam? Promoted and managed by FTIL, a listed company, it was well under SEBI jurisdiction, and responsibility to monitor. Now, ten years later, SEBI has deregistered Nirmal Bang, a broker, for allowing its clients to trade in ‘paired contracts’. Why now? Why not ab initio?

All I wanna say is that they don’t really care about us.

The 13,000 victims, duped of ₹6300 crores, have not been recompensed. Since a Government owned entity has not lost money, the Government cares two hoots about the victims. PM Modi’s promise, made ten years ago, to intervene, rings hollow.

‘All I wanna say is that they don’t really care about us’.

 The same is true for victims of several other Ponzi schemes where the fraud is committed on private individuals and the Government has not been duped.

And not only in India. One of the largest private financial groups in China, the Zhongrong Trust, filed for receivership in September. Assets of over $ 500 b. are at risk of vanishing.. Other than investing in property, Chinese savers have few options to invest money. So they lend savings to such Trusts which onlend (mostly to real estate companies). These individual savers are also singing the Micheal Jackson song.

Chinese households have invested 80% of their savings into real estate. This is an unwise concentration into one asset class, hoping for constant appreciation. The realty sector, too, was a Ponzi scheme, with investors constantly seeking exit in a few years. India’s household savings are much more diversified, in real estate, bank deposits, equities and bullion.

The realty sector contributed 31% of China’s GDP and is now in free fall once the bubble burst. Many realty firms have gone bust, impacting home buyers, who haven’t got possession, home owners, who have seen sharp declines in property values, investors in companies like Zhongrong, foreign lenders/bond holders of firms like Evergrande, and, shockingly, (despite sanctions) US pension funds! American retirees have lost money because of poorly managed pension funds!

All I wanna say is that they don’t really care about us’.

It can, indeed, be argued that Governments ought to seek to control, though extra supply, the appreciation in real estate prices, so that future generations find it affordable to own one. Till they can afford to own a house, they should be given access to a vibrant rental market. Our Government, on the contrary, discouraged the growth of a rental market, interfering in its development by giving protection to tenants, thus dissuading owners from giving empty flats on rent.

Take another case of differential treatment. In September, a  customs official in Mumbai was given a 3 year jail term for accepting ₹4000 as a bribe to allow a photographer to take his camera out of India. Fair enough, one will say, steps need to be taken to stop the corruption that eats into the innards of our economy. In December the IT department raided a Congress MPs distillery in Odisha and discovered Rs 353 crores of unaccounted cash! So much that several  machines got damaged in counting it. Nothing more has been heard. Was the amount seized? Was the MP jailed? If a customs officer gets 3 years for ₹4000, what, by the same yardstick, should the MP get, for ₹353 crores? As per my calculations, 26.4 lac years.

Are yardsticks different, Mr Modi?

Can you assure us that they aren’t?

Can you at least inform people about the action (if any ) taken against the MP so that your citizens don’t feel that it has been shoved under the carpet?

Last week the BSE Sensex closed at 72240, up 134 points over the week.

Global stock markets are pinning their hopes on a soft landing in USA (no recession) and on early cuts in interest rates by the US Fed. China, too, is hoping for that, so that a US business boom can create export demand. It is facing headwinds in FDI withdrawals, leading to high youth unemployment, plus a real estate collapse.

The price of Brent crude has fallen from its $ 94 high in Sep to $ 77 now,  largely due to reduced Chinese demand. This has contributed to lower inflation. Perhaps Jerome Powell may wish to wait to see crude oil price movement before starting the interest rate down curve.

Picture Source: http://countrycottagesnorfolk.co.uk/index.php/accommodation-two-hoots

Comments may be sent to jmulraj@asiaconverge.com