February 13, 2006


Noise and Signal

In the evening, I got to browse a slightly torn copy of Business India dated October 1999. Celebration of Sensex crossing 5000 mark was the lead story. The directors of BSE, brokers and other other BSE employees gathered on the terrace of Jeejeebhoy Tower and released 5000 balloons in the air celebrating the landmark. NDA Govt was just sworn in.

Then there was a fairly detailed article littered with the omnipresent factors - fundamentals, growth, consumer spending, interest rate, inflation, FII inflows and the holy market PE ratio. I didn't had much time so I just stole a quick look at some of the tables, graphs, pie-charts, and, of course, quotable quotes. One of the CEO of Mutual Fund was quoted, "This rally is for real and will continue." There was a usual ritual of differentiating how this rally is different from the one in 1994. I believe, such comparisons make people look smarter. Majority of the print space was occupied by the then darling of everybody - tech sector. Stories were fairly amusing - how a venture capital fund is hunting for companies to invest $500+ M and how they were getting a business plan a day; how a company with annual revenue of Rs 40 Crores was eyeing the NASDAQ listing in by 2001; a 20-something entrepreneur with his dot-com.

The fund house does not exist anymore. I haven't heard about the VC firm, NASDAQ listing or the name of the dotcom. Not then, not now!

By all this I mean no offence to anybody featured in the stories listed above. I fully understand, it is a no-brainer to comment with hindsight bias. In fact, it amounts to total baloney. But I believe there is some gyan to be acquired.

Now as Sensex crossed 10k, there were no balloons on BSE tower. The wound is recovered but the scar is still there. The media is, to say the least, hysterical about this figure.

I again hear the reasons - from different people, most probably those who did not burn their fingers. But just a few notes of caution.

At stratospheric levels of 10k, nobody wants to give a bearish comment. The ones who gave it at 7k are ridiculed by half-literate journos routinely. Everybody says, this is fair valuation reflecting confidence in future growth. One dude, who writes in the personal finance supplement of a daily, says in the long term he is bullish. And by long term he means, 10-15 years! How come people take solace in making such simplistic statements? May be stupidity has numbed all the senses. In an era, where Infosys gets a drubbing for not-so-great 30% growth on the next day, long term is talked in number of months, not years. Anybody holding, say HLL, from last 10-15 years deserves a mention in Limca book of records.

Budget gets undue importance. "Will Budget 2006 make or break the Indian dream?" - an ad of tipsters' favourite business channel screams. With very little knowledge of finance sector, I dare to say, budget is irrelevant. Do read the comments like "The budget is good as it is pro-poor, pro-growthl; but the FM could have done it better." Promoter of companies such as Mauje-Sawantwadi Group of Industries will then rate the budget on the scale of 10, with the average hovering around 7.

I am not a bull or bear - definitely not a pig. (Remember, in stock markets, bulls make money, bears make money and pigs get slaughtered?) This is just an observation. Few months down the time when market snaps its momentum, correction in Dalal Street parlance, all the pundits will say "I told you so."

Sorry for the broken sentences, if any. I am too lazy to proof-read it. Mr Bojangles will do that for me in the morning.

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