Via Manish’s News Tab at Ultrabrown, a blog post by John Elliott (“Riding the Elephant”) at Fortune. Is it just me, or is there a certain contradiction in the following paragraphs?
India has unsophisticated investors. I’m talking about stock market investors of course following the stock market crash, with Mumbai’s key Sensex index plummeting 19% from an all time and over-priced high of above 21,000 on January 8 to under 17,000 by Tuesday. Such a remark, judging from past Riding the Elephant experience, will generate a furious tirade of comments, especially from readers based in the United States who are always anxious to protect India’s reputation.
But how else can you explain a market which swings from such extremes. Last week it mobilized bids totaling an astronomic $180 billion for the $2.9 billion initial public offering launched by Anil Ambani’s Reliance Power (which has yet to produce a revenue stream). On Monday and Tuesday, it crashed, seemingly ignoring the country’s strong economic fundamentals. As Palaniappan Chidambaram, India’s finance minister, pointed out when he tried to calm nerves during the slide, the fundamentals are strong. The economy, he pointed out, is growing at around 9%, and the prime minister’s economic advisory council is forecasting 8.5% for 2008-09.
It’s not just Indian retail investors, but foreign funds (many of them based in the United States) that have been rushing herd-like into Mumbai in recent months – and then rushed out on in the past days. This afternoon I spoke to a leading Mumbai banker who has close links with the United States. “If anyone thought that having strong foreign institutional involvement in the Indian market would bring stability, it is clear that that assumption was misplaced,†he said (anonymously because of his links). He complained about a “lack of conviction and analysis†by foreign funds which “on Tuesday told me they were ‘getting the hell out of India’ and today are saying ‘buy.’†(link)
Who is John Elliott referring to when he talks about “India’s Investors”? His title and first sentence suggest he means local Indian investors. But the main focus of his post, starting in the third paragraph, is actually on foreign investors, who have added to the instability of the Indian markets with panic selling. Read the rest of his post — who do you think he is really talking about? Continue reading