- Wealth PMS
From my year-end piece at Yahoo:
2011 would be best forgotten by the Indian markets. Stocks have fallen around 25%, making it the second worst year in market history, after 2008’s drop of 52%.
The rupee has fallen another 20% against the dollar. Petrol prices are so high that pumps now sell it in ink droppers. The government has, with little prompting, carefully applied egg on its own face. Corporate profits are dropping dramatically, and RBI continues to hold interest rates high, because honestly that’s the only thing that’s they can keep high in this country. Europe has decided that each country will take its turn being in the news, so after we were bored of Greece, Portugal and Spain, Italy took centrestage. The concept of what actually happened is so complicated that if we unravel it in a single article, your computer will explode. What it means in the end is that when you mention “<Insert European Country> is in trouble”, very smart and sophisticated people in the financial industry will nod their head and quietly request their brokers to sell everything.
We attempt to take you through the events that occurred in the financial space, with the note that you can safely disbelieve anything you read here because we are likely to have made it up. (With due apologies to Dave Barry for borrowing his format)
The Great Gurgaon Fraud was unearthed as a Shivraj Puri, a relationship manager at Citibank, managed to lose nearly Rs 300 crores taken from high net-worth investors by putting money in the market while having guaranteed returns. He was immediately hired for a top government job.
The Sensex flirted with the 20,000 level but it had a big beefy boyfriend which smacked markets in the solar plexus and sent it right back to 18,000. The RBI patiently explained that it expected inflation to “moderate” after March. Onions became really expensive and prompted extensive outrage. Team Anna said that a Jan Lok Pal would immediately bring onion prices down and tears would be cheaper again.
Goldman Sachs declared that there was “no end in sight to India’s growth boom“, while at the same time telling other people to get the hell out of India. This is normal; you should cower in fear when they all say the same thing. Which happened soon.
Oil prices went to $120 as the Libyan crisis worsened, when protestors decided to overthrow the eccentric Gaddafi from power. Libya has a lot of oil, and good, healthy oil, unlike the Saudi Arabian oil which has to be sent to the hospital often for minor ailments. With Libya out of circulation, oil prices had to go up.
In India, the ban on plastic packaging of Gutkha was reaffirmed by the Supreme Court, saying “We’re okay if you get cancer eating that gunk, but God forbid you leave something non-bio-degradable behind”. Team Anna proposed that the Jan Lok Pal bill will cure cancer.
Gold went beyond $1,400 an ounce, creating panic in the arranged-marriage-implied-dowry-supply/demand. In the national budget, the finance minister Pranab Mukherjee lowered taxes by expanding the tax slabs, and brought about some earth shattering changes, such as giving 100 crores to a veterinary hospital in Kerala.
Markets continued to fall, with every analyst on every TV channel saying things like “This is a cyclical bear rally in a structural bull run”, a phrase that has the collective wisdom of wood chips. But it was all reversed soon.
Stocks rose 10% on the hope that Europe would not find itself drunk silly and lying in the gutter, which we will realize in September that it failed to do so. Warren Buffett’s candidate for succession, David Sokol, announced his resignation from Buffett’s company after it came to light that he had bought shares in a company before suggesting that the Big B buy it. This stunned many in the Indian financial space where such behaviour is considered good manners.
Japan saw a larger earthquake, a tsunami and a subsequent nuclear disaster at Fukushima, a place famous for having had a nuclear disaster. The Japanese establishment said there was nothing to worry about, and it was completely natural for residents to glow in the dark. Europe immediately went into a debt crisis, but no one knew the difference. The Jan Look Pal bill, said Team Anna, would arrest nuclear disasters and put them in jail.
RBI increase rates once again, to 6.75%, to control prices from running amok, which prices promptly proceeded to do. And soon, in:
India won the cricket world cup, defeating Sri Lanka in the final. The financial repercussions swept through the country as state after state offered the cricketers massive amounts of taxpayer money, despite many children dying of hunger in those states. More priorities were reinforced as the government, in the choice between a) governing and b) maligning Team Anna, chose (b), which was the wrong answer.
Corporate results came in better than expected, or worse than expected, depending on who Goldman Sachs was talking to. The IMF lowered India’s growth rate to 8.2%, as a result of the arrest of Suresh Kalmadi in the Commonwealth Games scam stemming from his being the emperor-for-life in all Indian sports. But it was being compensated by the Speak Asia scam, where if you paid some money, you earned the privilege of telling your friends, in a few months, how you lost all of it.
But the summer made things even more interesting.
In the annual policy statement, the RBI raised interest rates yet again to 7.25%, to control inflation. They also raised loan provisioning requirements, changed growth trajectories, lowered GDP projections, and mulled automatic data flow. This spooked investors, mostly those who didn’t understand a word that was said, which turned out to be 99% of the lot.
Osama Bin Laden was taken out in a sting operation in Pakistan after it was revealed he owed a substantial sum of money to the “Navy Seals”, having bet on Sri Lanka in the final of the cricket world cup. “You don’t default on the Navy Seals”, is what they tell you in Taliban schools now.
Petrol prices were raised by Rs 5 per litre immediately after state elections, making it even more expensive to drive someone up the wall. Infosys was investigated for visa fraud which involved sending people to work in the US on business visa applications, thus creating employment in the US for a vast battery of lawyers to defend their case.
Greece voted for an “austerity” package, which involved cutting down 28% of their government expenditure, including not allowing people to retire in their 50s, a measure very unpopular with Greek people in their 50s.
Diesel prices were increased in India by Rs. 3 per liter, which brought down the difference between diesel and petrol from a gazillion rupees to a gazillion rupees minus 3. Petrol prices were deregulated and oil companies were free to raise them whenever they liked. People wanted to protest but were hampered by having to queue up in long lines to fill up their diesel guzzling SUVs before the increase came through. Team Anna said that cars could be powered by the Jan Lok Pal bill if it was passed.
Indian real estate prices kept going up, with prices quoted so high that you could only fit your torso and one upper and lower limb. Real estate professionals said this was not a concern because you had anyway paid an arm and a leg for it.
There was a “debt limit” crisis in the US, where politicians debated whether or not the US government could take on more debt to pay back the debt they had taken previously. The choices were a) yes, okay and b) No, let the world come to an end. After long negotiations involving who gets to cut the cake and eat it, they voted to invade Iraq again.
Two analysts wrote about how Anil Ambani owned Reliance Communications had crossed an ethical line, demonstrating what is wrong with Corporate India. Mr. A praised their efforts, sending his comments taped to the head of a horse.
Analysts said that China is a bubble, for the 64,000th time. Team Anna reiterated that the Jan Lok Pal bill would cure bubbles.
Markets fell 8% in a month that was best forgotten. So we don’t remember anything else about it.
The Agriculture Minister stated that food production this year would be the highest ever, but that the government would continue to pay higher for it and have it rot in warehouses. Surprised, the RBI raised rates another 0.25% to 8.25%, with companies having to steal petrol from cars to pay the interest on their loans.
A rogue UBS trader lost $2 billion and managed to hide it from everyone, which created immediate demands to bring back black money from it, as it is a Swiss bank and can no longer be trusted.
The rupee-dollar exchange rate, after remaining in a benign range of Rs. 44 to Rs. 46 to the dollar, shot up to Rs. 48 without telling anyone, scaring the daylights out of everyone except Team Anna, who said the Jan Lok Pal bill would ban the rate going above Rs. 48, if only you would please be outraged enough to demand that the parliament pass the darn bill already.
The RBI raised interest rates to 8.5% and deregulated Savings Account rates which had been 4% or lower forever, prompting bankers to complain that they have to change rates for both borrowing and lending, which is double the effort.
MF Global filed for bankruptcy in the US, and it was found that in its dying days, it used customer money as collateral for its own trades. This was followed by a European debt crisis which never seemed to go away, as Italy joined the party and saw its bond yields go up all the way to 7%.
Going to the big hole in the sky were Ghazal maestro Jagjit Singh and legendary producer of the device that allowed you to listen to each of them for $0.99, Steve Jobs.
Diwali brought with it a scandal of Mahurat Trading when a rogue program went out of hand and bought all of the Sensex and its first born children. The trades were reversed, even though Team Anna said nothing. The stock market ended up 7.6% for the month anyway.
Kingfisher cancelled many flights all the way till January, mostly because it couldn’t pay for the fuel, the parking or the pilots. The stock fell to new lows but recovered quickly after it was found that the airline has been close to bankruptcy for a long time. Greece continued to haunt worldwide markets, while European leaders wondered if they could, or couldn’t, do something, or maybe not do something, or do something else.
Second quarter GDP growth fell to 6.9%, way lower than the 8-9% initially estimated. The drop in GDP growth coincided with a halt in all commercial activity on account of sending SMS and Emails that 1/11/11 and 11/11/11 were great dates for Aishwarya Rai Bachchan to have her baby.
Gold reversed a rising trend, prompting calls that the “bubble” was finally over, and that we told you so all the way from $1200. Moody’s downgraded Indian banks from “stable” to “negative”; foreign exchange reserves fell as the RBI scrambled to save the rupee going beyond Rs. 51 to a dollar; the stock market fell below ground level to the basement and was last seen poking around sewage pipes somewhere. Which got even worse in:
After an initial rise to the 5,000 level, the Nifty proceeded to fall nearly 10% and hit new two year lows as it became apparent that the Indian Government was not going to do anything that remotely resembled governance, and instead, figure out how to win votes for further elections. They introduced the FDI-in-retail card and quickly withdrew it, hoping that no one noticed. Then they introduced the Food Security Bill, which will cost the taxpayers between Rs 40,000 crore and Rs 100,000 crore. The money will not be looted, say government officials, while ordering a Mercedes for their cat.
The dollar-rupee rate went to Rs. 54, companies who have borrowed in dollars, who now must use more rupees to pay the loans back. Industrial production fell 5.1% and inflation stayed at above 9%, making it possible to have low growth and high inflation at the same time, while the RBI learnt to pronounce “stagflation”.
Team Anna was still in the news, angry about everything that had happened in the year, especially when all it would have taken was a Strong Jan Lok Pal….
So all in all, it has been a year that we would like to write off and ask for a tax deduction on. But no matter how controversial the year has been, it can only be overshadowed by 2012, when we expect more fireworks in Japan, China, Europe (if it still exists) and America. And in India, economic news will continue to be depressing, unless there is a game changing event such as “Why This Kolaveri Di” receiving an Oscar.
It will take more than words to soothe the global economy, and for all our claims of India being “decoupled” from the rest of the world, it is apparent our problems are just as bad. Let us hope 2012 brings us more cheer, joy and good humour.
(You will of course note that substantial portions of this article are made up and are not intended to hurt religious sentiments or resemble real people or events, or cause social disruptions such as the desire to send us New Year Gifts to shut us up.)