My Weight is a number to Vote on

Modi sweeps to power in India

Modi sweeps to power in India

There is a voting process. A democratic one. Like the Indian General Elections 2014.

Choice making, while voting, is rooted in experiences. Based on hope, expectations, fear, greed. It is a discreet event. Rationalised adroitly, often unknowingly, by ideology, by personality. But ultimately, it is hope that is voted in.

And then there is the stock market.

A barometer for the economy. Measure of business confidence. A scoreboard for the soul-sold money-oriented greed-grabbers. And because of the wolves on Dalal Street, the stock-market often dishes out a dangerous cocktail of mundane reality mixed with soaring hope.

But as Ben Graham told us: “though the stock market functions as a voting machine in the short run, it acts as a weighing machine in the long run.” And as Warren Buffet added “fear and greed play important roles when votes are being cast, but they don’t register on the scale.”

But they do. At least in the very short term.

As reports indicate, Indian stock markets have been one of the better performers in 2014. Reasons subscribed being the expectations, the hope of Mr. Modi leading good governance and forcing real growth. Interestingly, while the voting process was on-going, Indian stock indices kept climbing. But with the voting process completed, stock market have clawed back. Possibly the ‘weighing machine’ is kicking back.

And what does this ‘weighing machine’ tell us about India

As Mr. Buffet says “In economics, interest rates act as gravity behaves in the physical world”. Can India afford a lower interest rate regime? Oh, as a consumer, I would love lower interest rates. I will borrow more to buy – white goods, cars, houses, holidays. I would stop saving. And borrow. This will generate growth since Companies (many of them listed on stock markets) will invest more to feed this demand. But with this, I could also be unleashing inflation. Since the spending may not be on the essential physical and social infrastructure but maybe more on the superficial. Possibly. Maybe.

Alternatively, forget tinkering with the interest rate but let’s drive growth via fiscal activism. This view is what some economists, allegedly Mr. Modi’s imminent advisers, seem to be recommending. Again a step into the unknown. And by definition will lead to a ‘larger’ government. And if the ‘real growth’ is not good (or quick) enough, inflation will build. Once inflation climbs, interest rates move up. Growth gets compromised. Stock valuations take a dip since growth via borrowing becomes more expensive.

But what if I don’t need to borrow. What if I fund growth from my savings. My retained earnings. My equity.

To retain (save), I need to earn more. Sell at a price much higher than all expenses. Can the ‘average’ Indian company listed on the Indian stock exchange generate this higher surplus?

Very difficult.

But hold on. What if the overall cost of operations in India comes down? What if it becomes cheaper to manufacture, to produce, to create in India. Cheaper tomorrow than what it was yesterday. And cheaper because of faster decision making, eradication of inefficiencies, subdued corruption, improved contractual certainty, actual commitment towards delivery, availability of all social and physical infrastructure, across India, Indians.

This would be my measure of ‘better governance’. And If this happens, the weighing machine and the vote machine will point to the same number. And it will soar and then….all day long I’d biddy-biddy-bum 🙂

 

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This entry was published on May 30, 2014 at 9:32 am. It’s filed under Economics, Happy, India, Management, Politics, The Yeah Way and tagged , , , , , , , , , , , . Bookmark the permalink. Follow any comments here with the RSS feed for this post.

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