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Is encouragement key for markets?

Last week I wrote about how all kinds of investments in India were behaving abnormally. Dhirendra Kumar writes.

india Updated: Nov 01, 2011 22:35 IST
Dhirendra Kumar
Dhirendra Kumar
Hindustan Times

Last week I wrote about how all kinds of investments in India were behaving abnormally. Whether investors are looking at equities, equity mutual funds, fixed income mutual funds (and I could argue, gold), nothing is looking quite normal. It was interesting to watch that my complaint was answered by the new kind of abnormality—albeit some of it masquerading as normality. The Indian stock markets reacted with a violent and desperate heave upwards.

To all apparent purposes, this was said to be a combined reaction to two reasons. The first was the Reserve bank of India’s (RBI) raising of rates with a hint of a promise to stop raising them in the future, maybe. If you’re honest with yourself, you’ll know that’s all it is.

And the second reason was Europe. Here’s my impression of what happened in Europe. A whole lot of people who normally go to bed early, stayed up all night, talking to each other. Somehow, next morning, this convinced the whole world that they’re serious about solving their problems. In their heart of hearts, everyone knows that what was decided that night doesn’t amount to much, and the next bout of crisis will start in days, rather than weeks. Still, everyone’s trying to stay cheered because at least they’re trying, finally. It’s a bit like how parents start feeling hopeful when a few days before the exam, children start staying up all night trying to study. They may not actually manage to study much, but they, at least give them some credit for trying. Anyhow, if encouragement from the markets was what they’re looking for, they can’t complain about us—the Indian markets have supplied them with more encouragement than anyone else.

The Europeans seem to have had one bright idea, which is to ask the Chinese for money, because as we all know, the Chinese are the lowest-cost manufacturers of everything, including money. So let’s watch how this one works out. Meanwhile, make sure you keep encouraging the Europeans, even if all you can think of is to drink a glass of French wine.

First Published: Nov 01, 2011 22:32 IST